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Choose a broker who suits your needs
Smaller investors who know their way around the stock market can benefit from the cost-savings offered by the new discount broking firms, writes CIARAN RYAN
Smaller investors who know their way around the stock market can benefit from the cost-savings offered by the new discount broking firms, but investors who require plenty of reassurance and advice from their brokers will have to pay more. The Internet is also starting to revolutionise the business of share trading, with two firms now offering investors on-line trading services. Martindale Stacey Du Toit was first to introduce a discount broking service, charging a flat 0.75% brokerage fee with a minimum charge of R35 to private investors. Institutional clients are charged as little as 0.1%- a fraction of what they used to pay under the old JSE fixed scale of commissions. And in November Martindale Stacey Du Toit teamed up with Woza Broking to provide an on-line share dealing service whereby clients can place orders and receive confirmation of sale notices via the Net. To date, about 300 clients are using the service, and trades worth nearly R10-million have been transacted. But be warned. Discount broking is a high-volume hands-off business not recommended for stock market novices who need to spend hours on the phone every week seeking reassurance or share tips from their brokers. Discount broking is aimed at the educated investor who simply wants to place an order to buy or sell shares. There are other broking firms that are more than happy to field calls from private investors and to provide "service" such as advice on market trends and stock selections. Some of the stockbrokers who deal with private clients are listed in the accompanying table. Martindale Stacey Du Toit's Rob Turner says the firm's business has taken off since the introduction of discount broking and on some days the firm handles up to 10% of all JSE trade - an astonishing achievement for a company which barely registered on the JSE radar last year. The Internet service (available at http://www.woza.co.za) includes twice daily market and company reports which are e-mailed to you. Next to offer an on-line broking service was Cahn Shapiro. A fee of R90 a month gains you access to the firm's Internet site (http://www.cahn.co.za), allowing you to place buy and sell orders on-line at a flat charge of 0.75% and a minimum fee of R30. Clients can access their share portfolios (updated regularly) via the Net and read the firm's latest stock market research. You can test drive the system at no cost for a week, playing the market with an imaginary R1-million. Brokers notes confirming the trade are e-mailed to clients. The R90-a-month Internet access fee is waived for clients with managed accounts (that is, share portfolios managed by the firm) but they may not trade that portfolio. Gary Cahn, a director of Cahn Shapiro, says the firm has a small research team which specialises in second-line or high-growth stocks. Those placing orders via the telephone pay the old JSE sliding scale of commissions (see table). Another firm which offers low charges is PLJ Securities which charge 1% on the first R10 000. Standard Equities charges no brokerage on deals valued below R200. This is particularly attractive for investors who are taking their first small steps in the market. With the proliferation of capitalisation (receiving shares instead of dividends) and rights issues (when a company raises new capital by issuing additional shares to existing shareholders), thousands of investors have found themselves holding odd numbers or fractions of shares, known as "odd lots". They are difficult to trade as the JSE only deals in round numbers of 100 shares. De Witt Morgan specialises in odd lots, bundling them into round units of 100 shares so that they can be traded. The old JSE sliding scale of commissions applies. Not all firms are hungry for private client business, and some are highly selective in the type of private client they are prepared to accept. As the accompanying table shows, the minimum amounts accepted for managed accounts vary from zero to R250 000. Investors are generally subject to a credit check by the broking firm when seeking to buy or sell shares for the first time. You may be asked what size of transaction you are contemplating, and for the first trade you may be required to pay upfront in cash. Once you have established a good track record with the firm, you will be allowed to pay within the seven days allowed under JSE rules. Firms generally prefer to hold scrip (share certificates) on your behalf, as this makes it administratively easier to manage your account. Some firms offer this service free, others charge for it. The private client business is hugely labour intensive and small-scale investors who keep stockbrokers tied up on the telephone each week must expect to pay for this service. This is why many firms have retained the JSE's old fixed scale of commissions, or modified it slightly to make it more expensive for smaller deals.
Firms are often prepared to drop commissions on smaller trades, even where the fixed scale of commissions is advertised, for clients who make regular trades - or for those who push hard enough. However, do not expect discounts on brokerage if you are an infrequent or small trader, or if you occupy hours of your stockbroker's time on the telephone. Following the initiation of negotiable commission, competition for institutional business has intensified and rate cutting is the norm. Brett McLaren of Lowenthal & Company says the firm specialises in private clients and invests a huge amount of time educating investors: "We offer a very private, personalised service. We are prepared to spend time educating clients new to the market because we recognise that in time they may become large investors." Irish Menell & Rosenberg also has a large private client business and is noted for its stock selection. If you require a share portfolio management service (a managed account) most brokers will do this for you. Each client's investment objectives are established at the outset, governed by a written contract, and most large firms prefer to manage accounts on a discretionary basis whereby the broker manages your investments without referring back to you each time a transaction occurs. Another important point for investors to bear in mind is that firms with large research departments are generally able to offer better quality investment advice. These include BOE NatWest Securities, Fleming Martin, Ivor Jones Roy, Investec Fergusson Brothers, Standard Equities, SocGen Frankel Pollak, Smith Borkhum Hare, Simpson McKie James Capel and SMK Securities.
A word of warning - be careful that the broker does not "churn" your portfolio unnecessarily to generate brokerage. Brokers contacted by Business Times Money say they adopt a generally conservative investment approach aimed at long-term capital growth and do not unnecessarily trade the portfolio to generate brokerage. But it has been known to happen.
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