Singapore Broker Exodus Seen Quickening: Southeast Asia

[Bibi]

the rational way for many brokerages is simply to cut out brokers

I got a feeling brokerages like to keep brokers because if client cant pay, 100% fall on brokers.

Some here say brokers are redundant and prefer to trade online themselves. But ask yourself, do you receive emails/informations from them every morning/afternoon? They saved u time to dig/search reports from various website.

[greengiraffe]

I used to be an ex-industry participant... there is no doubt that there are structural changes. However, when the going gets tough, the tough will get going. Shrinking commission will not doubt result in structural changes but brokers will evolve should they want to continue in the industry.

The trouble with many is that they have not evolved to become skillful (but high stress) day traders or valuebuddy style type of "advisors".

While brokers are not supposed to provide advice, this is a fine line.

It is my personal belief that unless you value your clients' $ as your own $, take the hard stance of talking them out of speculation and protect their wealth, most of the brokers' fate will be sealed with the clients' wealth evaporation.

Imagine this, if one's belief is to invest fundamentally, one would have avoided CLOB crisis, internet bubble and the mad rush for 'S' chips. Once you have averted the major crisis, then the protected wealth will be bigger chips to scout around for value and overlooked ideas.

There is no doubt that SGX has done little to attract quality listings in recent years but a more hardworking broker would have even ventured overseas to provide their clients with overseas diversifications if the clients so wish to.

Basically, one must always think long term - must always think win-win. Private bankers also face with similar situations. While they have wealthier clients, most continue to adopt the bucket shop churner mentality and eventually their fates will be sealed via the excessive selling of complicated structured products.

GG

[Bibi]

It is my personal belief that unless you value your clients' $ as your own $, take the hard stance of talking them out of speculation and protect their wealth, most of the brokers' fate will be sealed with the clients' wealth evaporation.

GG

If i were to become a broker and i treat my clients $ as mine. I think i will eat grass within a year due to sales quota cos i dont buy/sell often. Just like insurance agent promoting buy term and invest the rest

[GPD]

There are lots of saying that some brokers bet against your trades to profit from you. Not saying that all brokers do that but you never know who you get and what goes on behind the scene. The fact they know the investors/traders' action but not the other way round and that most of us have to invest/trade through them don't put everybody on level playing field.

I also think MAS/SGX should stipulate that brokerage houses should disclose their holdings and their average prices on any companies which they provide coverage so that investors/traders can decide on the merit of their reports based on the amount of their vested interest. These analysts reports can influence the market and I will be surprised if they didn't use that to their advantage.

Why don't SGX also operate a E-trading platform for the public as well? One which allows share purchase/sale with a lower fee but without an in-house trading team overlooking the orders. It earns them revenue and give the brokerage houses a run for their money. In a way, it encourages/forces the house to improve on their services.

That said, a human broker can be more flexible than a machine with a set rules like allowing you to settle trade longer than normal, etc.

[yeokiwi]

I used to be an ex-industry participant... there is no doubt that there are structural changes. However, when the going gets tough, the tough will get going. Shrinking commission will not doubt result in structural changes but brokers will evolve should they want to continue in the industry.

The trouble with many is that they have not evolved to become skillful (but high stress) day traders or valuebuddy style type of "advisors".

The trouble is those who had done well by being an excellent trader or valuebuddy style "advisor" would have already made enough to exit the industry. Just like you, GG.
This industry will see a natural attrition of good brokers leaving for private fund management, becoming venture capitalist or simply doing self investment. So, in the broking industry, the experts are unlikely to stay back for some miserable commissions and occasional liability due to non-paying clients.

An industry cannot possibly reinvent itself if the best leaves for greener pastures.

And, the technology had narrowed the information gap between brokers and retail investors. If the retail investors are more resourceful, the chance is that they may know more about a company than brokers.

[ghchua]

The problem with brokers exist in other industries as well. Some jobs will be gone due to advent of IT or change in economy landscape. If one did not upgrade their skill and offer higher value added services, they will be replaced slowly but surely.

I guess most people still view brokers as transaction based which means I only call them when I need help. In fact, I can always call my brokerage house's call centre for help which means for people like me who trades on the internet, my broker is a faceless counterparty to me.

Brokers also have themselves to blame as they seldom (or never) call clients who did not trade for them for a long time. Some of them are traders themselves which means that when there is no business from clients, they do their own stuff/trading and just do some email forwarding every day.

I don't need those morning/afternoon email updates from brokers as I am a long term investor. To me, these are just daily market noises which I could do without. In fact, I have unsubscribed to all my brokers morning email updates and sms. If one had invested with a long term view, they should never react to short term market noises.

I do admit that some investors do need brokers, but they still need to do their own homework to make judgement for themselves. Therefore, as they get more experienced, they might want to do away with their brokers as well.

So, what's left for brokers? As I've said above, they got to offer higher value added services to survive in the industry. Some good ones had in fact make the switch to become analysts or fund managers. It is never easy but it is not impossible. Don't sit on your comfort zone.

[cfa]

Eventually like HongKong , no more remisiers, only dealers working for brokering houses.
I myself prefer to trade thru dealers, not remisiers , dealers have more authority than remisiers.

[piggo]

Low commissions? The trading fee (min $25) is not low.

[cfa]

SGX comm rate is still one of higher if not the higher. More room to adjust downward , but is SGX ready for it ?

[greengiraffe]

Perhaps the emergence of internet and the market efficiency resulting from which have led to the structural changes of the global financial markets. Hence declining revenue appears to be a global norm notwithstanding continuing firmness of global equities market in particular which is underpinned by massive central bank backed liquidity...

Brokers mull future amid slim pickings

WHEN hundreds of stockbroking’s best and brightest converge today at Melbourne’s Crown complex for the industry’s annual get-together, top of the informal agenda will be war stories about dwindling commissions in an over-competitive market.
The stockmarket itself might have perked up during the past 12 months, albeit in fits and starts.
Most advisers at small to mid-sized firms are simply eking out a living, as their dividend-hungry clients stick to the solace of the blue chips.
Morgan Stanley’s decision this month to cut commissions of its less productive advisers has left them asking who will move next.
“The mums and dads are pretty much where they want to be, in the banks and Telstra which make up 60 per cent of the market,’’ Stockbroking Association of Australia chief executive David Horsfield says.
But hope springs eternal in broker land and there are signs of reluctant clients (especially self-managed super funds) being lured out of hibernation by the -robust flow of raisings, initial public offerings, and mergers and acquisitions.
Still, no one is arguing the industry is “over-broked”, with few mid-tier firms earning anywhere near an acceptable return on capital. “When one shuts up shop another one opens up,’’ Bell Financial Group chairman Colin Bell says.
A principal of another mid-tier firm is more blunt. “Conditions are shithouse,’’ he says. “You would make more leaving your capital in a bank deposit rather than a stockbroking firm.’’
A senior adviser estimates his income has reduced by two-thirds, albeit from a high base: “Brokers like myself have been running at a loss for nearly three years.’’
Patersons Securities senior adviser Andrew Bostock says brokers have been their own worst enemy. “We over-reacted when discount brokers came along,’’ he says. “We cut from 2.5 per cent to 1 per cent and some brokers will deal lower than that.’’
According to the Stockbrokers Association, 120 firms are registered as exchange members, down from 126 a year ago and 134 two years ago.
But then there’s a staggering 650 “shadow” brokers — two or three-people outfits with a financial advisory licence but that outsource the execution and settlement to a third party.
At the same time the revenue cake has stagnated at daily cash equities volumes of about $4 billion a day, compared with about $6.5bn of pre-GFC levels.
“It doesn’t feed a lot of people,’’ Horsfield says. “The long-anticipated rush of industry mergers remains only a supposition, save for Melbourne blue-blood house EC Baillieu’s acquisition of Holst and — in a more boutique vein — the Perth-based Euroz’s purchase of Black Swan Equities.”
At the same time, regulatory costs and capital requirements have soared. “The cost of doing business has pushed brokers from being members of an exchange to the shadow-broking space,’’ Horsfield says.
“You can see why some of the people at larger houses have decided they can make more money by forming their own little firm.
“There has been a fundamental structural shift. But the industry hasn’t declined; overall it has expanded. There are more ¬brokers around than you actually think.’’
Wilson HTM adviser Hugh Robertson says that, like a good real estate agent, brokers need decent and diverse product in the first place.
Robertson spends his days scouring the industrial small caps for buried or emerging gems. “For some reason I’ve been hit with the lucky stick,’’ he says. “Business is better than during the boom (of pre-2007).’’
He concurs there’s no room for traditional brokers who “trade in relativities’’, such as urging clients to buy ANZ and sell National Australia Bank.
“Investors are saying unless you are an exceptionally good trader, do they need your advice? The age of just sitting down at your desk and being hit by a bucket of money is well and truly gone.’’
An adviser with a mid-sized firm says there’s enough business out there, but advisers need to be actively working the phones. “Those who complain they don’t have enough work are either starting out in the game or are just lazy.’’
Patersons’ Bostock says it’s slim pickings for advisers looking after a typical super fund with a conservative portfolio.
“There’s nothing to do because all the spec stuff and dogs have long been removed.
“What’s left is BHP, Rio, the big four banks, Telstra, Woolworths and Wesfarmers. They keep going up and paying good dividends. There’s no reason to move, which is fine.’’
Well, fine to a point: the sticky issue is that customers don’t ¬realise the absent brokerage ¬covers the gamut of costs ¬incurred by a full-service broker.
As with most of his peers, Bostock is trying to move clients to a fee-for-service style remuneration arrangement. A typical fee structure is a quarterly fee of $3000 on a $1.5 million portfolio, equating to 0.8 per cent a year.
But why would they? “You are asking people to pay for perceptibly the same service they have been getting for free, such as research and industry comment.’’
Baillieu Holst equity partner Richard Morrow says there was a wide push for a fee-for-service model, but it suited only some clients. “I think it’s largely run its race,’’ he says. “The ones who wanted to go to this model already have.’’
Morrow says the rise and rise of self-managed super funds has been helpful, given that these mainly invest in the sharemarket.
“With 10-year bond yields at sub-4 per cent and term deposits at 3 per cent, there’s really not a lot of competition for the super fund dollar.’’
Bostock concurs that brokers need to provide more product, whether that be insurance or funds management.
Palmer director Alex Moffatt says his partners saw the trend when they hung out their shingle years ago. The firm’s model is slanted to managed funds, including white-label funds for financial planners.
“We saw the stockbroking model had no legs,’’ he says. “Managed portfolios are doing well because the market is doing well. You have to add some value along the way.
“We are now dealing in international shares and with bonds now listed on the ASX, that’s another avenue of interest.’’
Moffatt rues that brokers are adept at giving away their know-how for nothing. “The industry really needs to take a hard look at itself,’’ he says. “If they take a ¬traditional approach they are doing themselves and their clients a disservice.’’
Despite being oriented to the resources sector, Cannacord Gennuity generated record revenue and earnings last year. Formerly BFG Equities, the firm is now 50 per cent owned by Canada’s Cannacord.
Principal Warwick Grigor says many resources-oriented brokers “played around” with volatility or relied on corporate action such as takeovers, which have been thin on the ground.
Given the “tight” conditions, the firm has expanded its repertoire to small industrials including biotechs, e-commerce and the gaming sector.
Grigor says Cannacord’s capital imbued the firm with the balance-sheet strength to invest in areas such as research.
“Being a fairly young firm we don’t have the overheads or excesses which otherwise might have been around,’’ he says. “We have been able to re-energise ourselves for a change in the market.’’
Based on the old Bell Potter, Bell Financial Group doesn’t have the benefit of unburdened youth. But it recently took a different expansion tack, signing a deal with Citi by which Bell clients access Citi research and products.
The quid pro quo is that Citi accesses Bell’s distribution to its base of 160,000 active clients.
As a direct result of this, Bell snared a prize role as co-manager of last week’s successful relisting of the renovated Spotless Group.
Bell says while the firm has a strong portfolio servicing offering, most of the revenue derives from transactions and equity capital markets.
“The transactional stuff is difficult,’’ he says. “But thank goodness we don’t have advisers telling clients to do something for the sake of it.’’
While today’s attendees could be forgiven for a maudlin moment or two at welcoming drinks, there’s the prospect of rosier times if the market continues to improve to pre-GFC levels.
“We just need the economy to pick up and turnover to pick up and we will be OK,’’ says Morrow.
“It’s swings and roundabouts in this market in that now’s the time to be taking on new advisers, now that we have time to train them up.’’
Further salvation lies in term deposit holders returning to high-yielding shares when they discover their maturing five-year term deposits now pay 2 per cent, rather than 6 per cent or more.
Wilson HTM’s Robertson says he has signed up his best flow of new clients since the wave of privatisations in the 1990s.
This is because of his ardent promotion of emerging small caps such as automotive parts group AMA, payday lender Money3 and Yowie Group (which is reviving the revered 80s confectionery).
“The future of mid to small brokers is dealing with mid to small companies,’’ he says. “There’s increasingly an opportunity for smaller brokers, but they need to concentrate on what they do best.’’
If anything, Horsfield marvels at the sector’s resilience. “For as long as I remember everyone has said the industry is over-broked,’’ he says. “But somehow it always lives to fight another day.’’