Readers who on occasion came across my portfolio would have notice that my brokerage commission sometimes can be rather low.
It is certainly lower than the minimum SG$29 brokerage for Singapore’s brokerages.
This is because I use Standard Chartered Online Trading (SCB), which is a nominee account where they do not charge you a minimum commission.
What this means is that for example if I buy 1000 shares of Transit Mixed, an illiquid Singapore stock traded at $0.60, my commission is roughly $0.60 x 1000 x 0.00256 = $1.536.
It looks like tremendous advantage for investors who are starting out with less capital and folks who have less conviction in certain stocks and would like to take “recce” positions (Kyith loves to do that a lot of times as well)
The bad news for many customers who made use of SCB’s Online Trading comes this week in a mailer that states that there will be changes to the brokerage amount.
What will be changing and what will remain the same
The big change is that SCB will be setting a minimum commission for trading in all markets available for customers to trade:
- Where the shares are traded in AUD/ CHF/ EUR/ GBP/ SGD/ USD, the minimum brokerage amount is 10 AUD/ CHF/ EUR/ GBP/ SGD/ USD respectively.
- Where the shares are traded in HKD, the minimum brokerage amount is 100 HKD
- Where the shares are traded in JPY, the minimum brokerage amount is 1000 JPY
- The minimum brokerage amoutn applicable will be based on the currency of the shares traded in , regardless of the Exchange the shares are listed on
Who will not be affected would be the clients who are under Priority Banking, a declared enrolled service, where the minimum qualifying is an AUM of $200,000.
This will come into play on 1st August 2016.
It will not be very good to invest, speculate, recce with small amounts (Duh)
The biggest folks who would be impacted are the clients who use SCB Online Trading at a starting ground, or speculate in small amounts.
For example, going back to my previous example, the $600 Transit Mixed Concrete brokerage cost at $10 will be 1.6% versus 0.25% previously.
Suppose you set a cap to keep your brokerage cost below 0.4%, this means that the minimum value of your shares purchased will need to be $10/0.004 = $2,500
In the past this works very well for the Singapore market when SGX reduced the lot size form 1000 shares to 100 shares.
Now we are back to square one.
In the past it is also very good for those folks investing in USA stocks where you can purchase one share, for example trading at $4 and pay $4 x 0.00256 = 1 cent in commission.
You cannot do this any more.
I will not be able to purchase illiquid counters well
There are many listed businesses that looks to be good, undervalued, but they are thinly traded. With SCB Online trading I was able to collect them in small amounts, or even large amounts, with only a small amounts getting filled.
This will not impact my percentage commission costs.
Now it will be a different proposition.
It will impact the clients dollar cost average into STI ETF
There are investors who wants to be discipline and invest monthly a small amount of $350 – $1000 into a passive index that tracks the 20 blue chip stocks in Singapore through the STI ETF.
Each share of SPDR STI ETF is currently around $2.9 and with a lot size of 100 shares, the lowest value a wealth builder can purchase monthly is $290. The commission on it is $0.74.
This minimum brokerage will impact this group of clients.
They would probably need to save up 9 to 10 months so that they can purchase at one time to make the brokerage cost effect.
(Note: While we do not know the future returns, the costs is definite and you pay them upfront, so one of the biggest impact to your wealth when you are passively investing in a portfolio of ETF is the COST, and you have to make sure you take that into consideration.)
The minimum brokerage amount is still very low versus the competition
With all things said, $10 is still cheaper then the competition, which are like a cartel fixing the commission at $25 to $29.
If you are unsure about a business and would like to nibble first, putting in $2,500 with SCB Online trading is better than getting rid of SCB Online and going to the traditional brokerages.
For USA you may have more options such as Interactive Brokers and ThinkOrSwim which are lower.
What I and perhaps you need to do
The first thing I will do is to take a look at many of my positions that have a value of $2,500 and below. I may need to sell them off.
Going by the news of how challenging it is for SCB as a banking entity, I have hedge my bets by using more of my traditional brokerage sources then solely SCB.
Thus, I am less affected by this, but still it will push me to procrastinate less and do something.
I may also have the option of applying for Priority Banking and so this will not affect me.
Most importantly, it vindicate the value methodology, that you have to build conviction in your purchase, that is, to purchase in good amounts, if you have conviction the business is undervalued.
You cannot be wishy washy about how well you know things, by saying “lets buy 2000 shares and see whether the price drops further”
You need to be clear that “this price is dear”, or “this price is cheap. even if it drops more its cheaper. I know its cheap at this price because xxxxxxx and xxxxx.”
The bigger problems with SCB Online Trading
While setting a minimum commission is not good news, clients or prospective clients are attracted to SCB because of this tremendous advantage.
Without this advantage, the clients may not live with some of the short comings.
3 of them are:
- Currency conversion cost from one currency to another through the platform is very expensive versus other means
- Not as sophisticated of a platform versus other traditional brokerage
- It does not store your shares in CDP but a nominee account, with a trustee with the bank
In my opinion there is no near perfect platform.
The traditional brokerages seems to be a cartel where the prices are set high and even startups or overseas players like ThinkOrSwim who may have the intention to lower the brokerage fee, were facing headwinds.
As stock investors, there seems to be very little progress on this part.
For a country, that touts their infrastructure to be “first world”, we have a thinly traded stock exchange, with less and less companies listed, and high brokerage fee.
How can we grow our FinTech when we are like this.