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Opinions still divided about online broking

Online share brokers have won customers by undercutting prices charged by traditional brokers. But some say they haven’t lived up to early expectations and must come up with new products to survive.

Sunday, June 10th 2001, 9:30PM

When Access Brokerage and DF Mainland set up New Zealand’s first online share brokerage services two years ago there were predictions traditional brokers were in for a rough time.

As well as undercutting commissions charged by full-service brokers, their transaction-only service delivered via the Internet offered clients the convenience of being able to place orders and monitoring prices from a home or work computer.

But two years later, opinions are divided on how successful they’ve been in winning significant market share.

Five of the New Zealand Stock Exchange’s 23 member firms now offer online trading, charging upwards of $20 to $30 for each transaction on the New Zealand exchange. This undercuts commissions charged by full-service brokers – which generally have a minimum of about $50.

No official figures are kept on which firm does the most business online, though Access is considered to be the biggest. Along with DF Mainland, its rivals are ASB Securities, Direct Broking and NZIJ – formerly Reuhman & Co.

Likewise, the Stock Exchange has no data on how much trading is initiated online. Full-service brokers estimated it at about 5 percent of the total value of shares traded, though online brokers say it’s between seven and 10 percent of the deals done.

Initially, full-service brokers – whose higher charges cover extra services like research - were nervous their online rivals might steal significant market share, says John Owen, head of retail sales at full-service broker JP Morgan.

"But we’re not as worried about it as a year ago," says Owen, adding that last year’s technology stock crash put people off online trading.

"The people investing in tech stocks were the sorts of people who used the Internet to invest. They got their fingers burnt and lost a lot of money cause they didn’t get advice," he says.

There are other signs online trading hasn’t lived up to early expectations. Earlier this month the New Zealand Herald’s Stock Watch site dropped its QuickTrade online trading service because of low usage rates. Across the Tasman, online broker E*Trade has been losing money, forcing shareholder ANZ Bank to write-down the value of its investment.

However, online brokers insist the business is profitable and that demand is growing.

"It’s continuing to grow, though not at a horrendously fast rate," says Direct Broking founder Nigel Wynn.

People’s initial expectations of how popular online trade would be were unrealistic, he says, adding that growth in New Zealand might be slower than in Australia, but at least here brokers were making money.

ASB and Access are more upbeat about the growth and profitability of their online businesses.

"In the past 12 months its grown 100% in terms of the number of trades and clients signing up," ASB Securities managing director Tim Preston says.

ASB has experienced fast growth and made money from its online service.

"We’ve increased our client base probably 15-20% in the last year to 18 months and that’s predominately from clients going online," Access Brokerage marketing manager Peter Hansen says.

Hansen also insists a drop-off in online trading after the tech bust was a short-term "blip".

However, he says low margins mean online brokers need high volumes to be profitable – and that means the number of online brokerage houses is likely to eventually drop to two or three.

As for the future, Hansen says the drive for profit will see New Zealand following trends overseas, where online brokers also sell services traditionally offered by full-service brokers, like portfolio management.

Another change could be the introduction of the Stock Exchange’s eFaster system, which would make true online trading possible for the first time. Currently, clients can place orders with brokers online but brokers must manually input the trade into the exchange’s system. Under eFaster the entire transaction would be electronic.

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ANZ ▲6.74 6.05 6.49 6.65
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BNZ - TotalMoney 6.49 - - -
Credit Union Auckland 6.70 - - -
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Credit Union South 5.75 - - -
eMortgage 6.04 6.15 6.69 7.19
Finance Direct 6.10 6.45 6.69 7.10
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First Credit Union 6.45 - - -
General Finance 5.95 6.25 6.50 7.10
HBS Bank 6.15 5.85 6.20 6.25
HBS Special - - - 5.95
Heartland 6.45 6.75 7.00 7.60
Heretaunga Building Society 6.25 5.85 6.50 -
Housing NZ Corp 6.50 6.00 6.30 6.60
HSBC Premier 6.59 5.95 5.99 6.25
HSBC Premier LVR > 80% - - - -
HSBC Special - 5.85 5.85 5.85
Kiwibank 6.40 5.99 6.29 6.29
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Kiwibank - Capped 5.65 6.50 - -
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Last updated: 25 July 2014 10:55am

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