Despite what people think it is true that you don’t need a broker or brokerage account to purchase stocks. It might be easier to go the brokerage route, but not necessary. Have a look at our top ways you can bypass the broker.
Investing without a broker can be complicated, and you do need to some special circumstances to become eligible for these scheme, but here are 7 ways you can purchase stocks without a broker:
- Use a Transfer Agent such as Computershare.
- You can take advantage of your workplace’s Direct Purchase Plan.
- Use a Dividend Reinvestment Plan (DRIP) where instead of getting dividend you receive more shares.
- See if your workplace has a Company Stock Option Purchase Plan.
- Invest through your retirement account like a 401(k) or IRA
- Use a 0% Commission online account
Companies such as Coca Cola and Walmart are examples of those that offer company stock options, but unfortunately many don’t. Buying stocks without a broker can be expensive, so although it is possible we still recommend using a reputable broker.
How to Buy Stocks Without a Broker
You can bypass the broker using one of the ways described above. I’ll explain how this is done briefly in this section.
Using Transfer Agent
This is the most expensive way to bypass the broker. A transfer agent is a usually a trust company, bank, or similar institution.
Once you enlist their services the transfer agent will act as the liaison between you and the company’s registrar. They will ensure your investment is kept safe and that you receive any dividend payments in a timely manner.
The downside of using a transfer agent is the expenses, because they are buying and selling shares as well as organising your account the cost to instruct an agent is very high. If you are cost conscious you would be better off with a 0% commission online broker.
Workplace Direct Purchase Schemes
A direct purchase plan was common in the days before the internet and online banking. Companies would regularly let members of the public buy shares directly, in exchange for cash.
This has since discontinued and now is only available employees of said companies, it is still a good way to purchase and sell shares of large corporations.
If you work for a publicly traded company you should look into this as it is one of the few ways to buy shares fee free. They will simply deduct the cost of the shares from your wage. This is very similar to the Employee Stock Options Plan.
Dividend Reinvestment Plan
For this plan you will need a brokerage account, either online or with a local transfer agent.
M1 Finance offers the best DRIP account I’ve seen. You will need to fund and invest your money into companies of your choosing, or pick one of M1 Finance’s recommended dividend portfolios. Then tick the box that says “Enable DRIP” and that’s it, rather than getting paid in dividend, you will be paid in more shares.
The good thing about DRIP’s and M1 Finance is that you can invest in fractional shares.
Invest Through a Retirement Account
Many people know that your retirement accounts such as private pensions, 401(k)’s, Roth IRA’s, and Traditional IRA’s are investments made on your behalf.
You can open a retirement account through your employment and a set amount of your wage will feed into the account, slowly growing over time. This is not so much a broker or brokerage, but a pension provider, you money is at risk but the tolerance for risky investment is lower.
M1 Finance again host a multitude of passive retirement accounts.
Bypassing the Broker could Make you More Money
Value investors or people saving for retirement buy and hold positions for decades. Executing these long term trades could be better when bypassing the broker.
Generally the longer you intend to hold a stock the more it makes sense to purchase it direct. That way you take full advantage of the dividend reinvestment plans, hence compounding your profits for years to come.
Plus, by buying direct, you don’t have to pay the brokers any commissions when you receive a dividend payment. Also companies tend to be generous when issuing shares as dividends, so you might gain a higher yield when investing in a DRIP.
Another thing is… If you use a transfer agent, although it will be more expensive, it leads to benefits that retail investors can’t access such as, extended trading hours and discounted share price with access to a special “Waiver Discount”.
When Bypassing the Broker is a Bad Idea
The number 1 reason why bypassing the broker is sometimes a bad idea is timing.
It can take some time to directly purchase shares of a company, and even longer to sell them. Because you don’t have a middleman doing all the work you are relying on the companies investor relations department to complete your orders, and they aren’t the quickest bunch (especially when your selling).
The timing issue can lead to lost money as you can’t quickly depose of a bad stock. So be on the lookout for dips in share price, they could cost you pennies or pounds depending on your agent.
How to Tell if a Company has a Direct Purchase Plan
It is very easy to find out if a company has a direct purchase plan in place. If you go to the companies website, most of them will have a FAQ section, type in ‘do you offer a direct purchase plan for shares?’ and hopefully your answer will be provided.
If that doesn’t work you could ask Google. If direct purchases are available, Google will take you straight to the purchase information. Usually it will be under a transfer agent, but if they can buy direct, so can you.
If all else fails you could call the companies investor relation department. All companies traded on major exchanges are required to have such departments, so check their website for a directory number.
US Companies that have Direct Purchase Plans
Here are 15 companies on US exchanges that you can buy direct from:
- 3M Company
- Apache Corporation
- Bank of America Corp
- Callaway Golf Company
- Chubb Limited
- Duke Energy
- Exxon-Mobil Corporation
- General Mills Inc
- Kellogg Company
- Morgan Stanley
- The Bank of New York Mellon
- Union Pacific Corporation
- United States Steel Corporation
- Xerox Corporation
- Zions Bancorporation
Why You Should get a Broker
In todays market, it has never been easier or cheaper to get into the stock market. Online brokers offer commission free trading, 0% retirement accounts, and 0% investing accounts.
If you buy direct and don’t use a transfer agent you will be missing out on the majority of the market. Companies such as Facebook, Apple, Amazon and Google don’t allow you to buy shares without a brokerage account. Those are 4 of the quickest growing companies in the 21st century, and you will have missed out.
Finally, because companies like Trading 212, M1 Finance and eToro are offering free investing accounts, you would be silly not to take advantage of the opportunity. These brokers are not like the old Wall Street guys.
I think you should be careful buying direct as it is not for the faint hearted day trader, only if you don’t need the money you are investing for the next 10 years, should consider buying direct.