Online Broking: Differences between services explained
Everyone's doing online broking it seems...but who's doing it properly? Ann Cunninghame checks out what's on offer and gives some tips for share trading in cyberspace. w
Wednesday, January 26th 2000, 12:00AM
Since our special feature four months ago, both ASB Bank and BNZ have joined the fray, prices are falling as Access Brokerage's flat rate of $29.50 starts to bite and other players have signalled their intentions to enter the local market (see our table for details of who's doing what).
Sharebroker DF Mainland even took the radical step of offering free, "at market" online trades throughout December. Chief executive John White was overwhelmed by the demand when Good Returns spoke to him before Christmas, but said it had proved a successful pre-emptive strike ahead of the extra competition. He says the company doubled its client base during the offer.
Among the broking fraternity, more than 80 per cent of those surveyed late last year by Auckland law firm Hesketh Henry said they were planning to offer online trading. However, the low volume and liquidity in the New Zealand sharemarket could be a barrier to the type of explosive growth seen overseas: in Australia, one in every ten trades is done online and it's as high as one in four in the US.
The trick now is to position your online service so you can avoid competing on price alone. DF Mainland works hard to distinguish itself from discount brokers Access Brokerage and Direct Broking: as John White puts it, "we offer research and we offer product".
New entrant ASB Securities takes a slightly different line, with managing director Tim Preston stressing the convenience of doing a full range of banking and financial services through the one portal (registered customers can use the same codes as they do for ASB's online banking service Fastnet).
"ASB Securities is able to benefit from ASB Bank's expertise for advanced technology as well as, increasingly, being a full-service financial services provider," Preston says. "In addition, we're fortunate to be able to leverage off the skills and expertise of Commonwealth Securities, Australia's biggest and most successful Internet and discount stockbroker."
Meanwhile, at the discount end of the market, Access Brokerage's flat rate of $29.50 per online trade has generated some "fabulous" results. Marketing manager Peter Hansen says it's tight, "but it's a volume game, and flat rates are where the industry is going".
"We're getting six and seven figure trades quite regularly coming through our system.
We've only been in operation (online) for a few months and it's going well beyond our expectations. However, Access probably more than any other broker was set up to handle big volumes anyway - our roots are as a discount retail broker."
Hansen says that trading in Australian listed shares will be available early this year "and we're looking at the US and other markets like the UK and Hong Kong".
Access has certainly set the scene in New Zealand for lower brokerage rates: Direct Broking has already lowered its rates once and DF Mainland has them under regular review. Online giant E*Trade has recently cut brokerage rates in Australia (from $A49.50 a trade to $A39.50, dropping as low as $A29.50 for frequent investors). Director operations Alex Burt says the rates may be cheaper still when the company launches in New Zealand shortly.
Another player expected to enter the market before much longer is the New Zealand Herald, which currently offers StockWatch services online and a personalised portfolio service sponsored by sharebroker Ord Minnett. While the Herald's head of new media couldn't be contacted for comment, one broker described the newspaper's plans as "converting the lookers into bookers".
However, in spite of how cheap and convenient online trading appears, there's still a lot more to it than buying a book or a bunch of flowers over the Internet. Australia's corporate watchdog, the Australian Securities and Investments Commission, has issued a few useful reminders which will doubtless be echoed in New Zealand as trading takes off here.
The ASIC says that some investors may be using online technology without understanding how it really works. It suggests that:
- Before doing any trading, you find out how the Internet broker will place your share orders, how you will get confirmation that your order has been placed and whether your privacy has been protected.
- You ask a financial adviser or broker for advice on the most suitable investment strategy before trading, then compare the range of costs and services offered by different online brokers before choosing one.
- You also make sure to read the terms and conditions which govern an online trading agreement and keep records of all share trades.
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