Saturday, July 28, 2012

Why Australians are abandoning stockbrokers

Private client stockbroking firms are failing to satisfy affluent and wealthy customers as equity market trading volumes languish and top end clients increasingly look to online brokers.
More than 40 per cent of affluent and wealthy individuals prefer to use an online broker, according to a survey by financial services research firm CoreData. The survey of almost 2000 individuals also found that those using a full-service stockbroker gave the firm only an average score.
Among those who used an adviser, Melbourne-based Ord Minnett scored the highest on satisfaction with 6.2 out of 10, followed by Morgan Stanley Smith Barney at 6.
Waning investor confidence and a slide in trading volumes hit the retail stockbroking industry’s rating, which came in at 5.6 out of 10, while online brokers scored a satisfaction rating of 7.3. Risk management and returns were the largest drivers of satisfaction, while information and research wasn’t a strong factor.
Ord Minnett boss Tim Gunning said the challenge for the stockbroking industry was to “remain relevant” to investors by providing more advice on asset allocation in areas such as cash and the listed bond market.
“The industry has clearly got some work to do,” he said, referring to the survey’s findings. “A focus on equities alone hasn’t been enough in this environment.”
JBWere chief Paul Heath echoed that view. “Old style stockbroking is not enough any more,” he said. “The nature of advice has changed. If you haven’t been able to evolve you become irrelevant very quickly.”
Brokers, both institutional and retail, are grappling with an 18 per cent slide in trading volumes year-to-date compared with 2011, while costs related to market surveillance and trading on multiple exchanges are going up.
Bell Financial Group and Wilson HTM have flagged losses for the year ended June 30, while RBS Morgans reported a 58 per cent profit drop in the 12 months to March 31.
The S&P/ASX 200 has shed more than 7 per cent in the past year, as financial markets continue to be roiled by global macro-economic conditions and Europe’s debt woes.
“There is an obvious link between investor sentiment towards brokers and how the bourse is performing,” local head of Morgan Stanley Smith Barney Harry Parkinson said.
CoreData’s survey also identified a broker’s experience, trust, communications, investment performance and value for money as the top five factors for satisfaction, while fees and charges and access to IPOs were in the bottom five.
“There is an alarming amount of distrust towards stockbrokers and the more they continue to focus on returns exclusively that trust gap will widen,” CoreData director Guy Ogier said. “Australian full-service brokers are in serious danger of missing the opportunity . . . Brokers must focus their efforts on client satisfaction.”
The survey also suggests there isn’t a dominant player among local private client stockbroking firms.
Excluding Commonwealth Bank, which aggregates its retail and institutional brokerage, Sydney-based BBY accounts for 1.7 per cent of total volumes this year across the Australian Securities Exchange and Chi-X, while Macquarie Private Wealth sits at 0.9 per cent. Trailing the pack are Wilson HTM and Shaw Stockbroking with about 0.2 per cent each.
The head of Macquarie Private Wealth, Eric Schimpf, said internal research of private clients showed “thought provoking ideas” were highly valued.
CoreData defines affluent individuals as those with investable assets of $50,000 to $350,000, excluding their main residence and wealthy individuals as those with $1 million to $3 million in investable assets.

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