How to choose a broker in Europe: regulator, compensation scheme and the five fees

Start with the licence

A broker serving EU retail clients must be an investment firm or bank authorised under MiFID II by the regulator of its home member state and may then serve clients anywhere in the EU. The home regulator supervises it; the compensation scheme of the home state covers it. Find the legal entity named in the account agreement, because a brand can operate through several entities: one authorised in Germany for German clients, another in Cyprus or Lithuania for the rest of Europe, each with a different regulator and scheme. The entity, not the brand, is what you are choosing.

What the compensation scheme does

Your securities are held separately from the broker's own assets, in a custody chain that ends at a central securities depository, and they belong to you if the broker fails. The investor compensation scheme steps in when they cannot be returned, for instance through fraud or an administrative failure, and pays at least €20,000 per investor; Germany and some others pay more. It never covers a fall in the market value of what you own. For most investors the practical protection is the segregation, and the scheme is the backstop; both depend on the home state of the entity.

The five fees

Brokers compete on the fee that looks smallest in an advertisement. Total the five that exist for your own pattern of investing. Order commission: per trade, flat or a percentage, sometimes zero for a selected list of ETFs. Custody or account fee: monthly or yearly, sometimes zero, sometimes a percentage of assets. Currency conversion: charged when you buy a security priced in another currency, from near zero to over one percent, and often the largest cost for buyers of US shares. Inactivity fee: charged when you do not trade for a period, punishing exactly the behaviour that serves long-term investors. Spread and execution: the difference between the price you get and the market's, which a broker that routes orders to a single venue may widen.

Where your order goes

Some brokers route every order to one trading venue or market maker, which is how zero-commission models were funded: the venue paid the broker for the order flow. The EU has banned payment for order flow, with the last national exceptions expiring in 2026, so this funding is disappearing and fees are being re-priced. What remains is execution quality: a broker connected to several venues can find a better price than one connected to a single one. For a monthly ETF purchase the difference is cents; for frequent share trades it adds up.

Securities lending

Many brokers lend out clients' shares to short sellers and keep some or all of the fee. This is legal and, when collateralised, low-risk, but it means your shares are temporarily someone else's, and it is often switched on by default in the terms. Read whether the broker lends, whether you can opt out, and whether you share in the income.

Tax reporting and the rest

A broker established in your own country will usually withhold tax where required and produce the annual statement your tax return expects. A broker elsewhere in the EU will not; you receive a transaction list and do the return yourself. That is manageable for an ETF saver and tedious for an active trader. Add the product range you actually need, whether fractional shares matter to you, whether the app or the website is usable, and whether there is a human to reach when something is wrong with a transfer.

“Pick the entity for its regulator, then pick the broker for your pattern. The advertisement was written for someone else's pattern.”

The checklist

Legal entity, regulator and compensation scheme. Total annual cost for your own pattern using all five fees. Execution venues. Securities lending and the opt-out. Tax reporting for your country. Product range and usability. In that order, because the first item is the only one that matters if something goes badly wrong, and the second is the only one that matters every year.