Pop­u­lar­is­ing mar­ket par­tic­i­pa­tion

Financial Mail - Investors Monthly - - Contents - Stu­art Theobald Chair­man, In­tel­lidex

The health of our cap­i­tal mar­kets, and the econ­omy as a whole, de­pends on po­lit­i­cal sup­port. And that in turn de­pends on South Africans feel­ing they have a vested in­ter­est. There is no bet­ter way to achieve that than by hav­ing in­di­vid­u­als in­vested di­rectly on the JSE. That re­quires the in­ter­me­di­aries be­tween in­di­vid­u­als and the mar­ket — re­tail stock­bro­kers — to do their best to con­nect the two.

The good news, as this month’s In­vestors Monthly makes clear, is that the bro­kers are ex­celling. The re­search un­der­taken by In­tel­lidex shows that bro­kers get very high scores for client sat­is­fac­tion — even the lag­gards in the mar­ket. They do far bet­ter than sim­i­lar sur­veys of clients of big banks, for ex­am­ple. As the re­search makes clear, bro­kers have been in­no­vat­ing at pace, driven by the com­pet­i­tive­ness of the mar­ket and by the bench­mark­ing process that we have pub­lished for the past five years and share here again this month.

In­no­va­tion is one key driver of suc­cess for bro­kers, but the scope they have to get in­di­vid­u­als into the mar­ket is also aided by the reg­u­la­tory en­vi­ron­ment. The in­tro­duc­tion of tax-free sav­ings ac­counts (TFSAs), for in­stance, has en­abled stock­bro­kers to mar­ket to a new in­vest­ment au­di­ence that will be at­tracted by the low costs and tax sav­ings em­bod­ied in such ac­counts. Bro­kers have de­vel­oped in­no­va­tive ways to make TFSA ac­counts cheap, such as this year’s win­ning firm,, which charges only a 0,25% com­mis­sion and zero ac­count fees for TFSAs — the cheap­est way to get eq­ui­ties ex­po­sure that we know of. Strate, the cen­tral se­cu­ri­ties de­pos­i­tory, cut its fee by two-thirds for in­stru­ments used in TFSAs, help­ing bro­kers pass on more sav­ings.

More can be done. Trea­sury has been ten­ta­tive in al­low­ing only ex­change-traded funds, not in­di­vid­u­ally listed com­pa­nies, into TFSAs. The logic is that ETFs are lower risk, as port­fo­lios with­out con­cen­trated sin­gle ex­po­sures. But in­di­vid­u­als should be free to build port­fo­lios how­ever they like, tak­ing on risk where it makes sense for their life stage and risk ap­petite. Trea­sury should at least al­low for blue-chip stocks to be held in the ac­counts, such as those in­cluded in the top 40 in­dex. An in­crease to the R30 000/year limit would help too.

There is also more that the JSE could be do­ing. The ex­change has run a luke­warm mar­ket­ing cam­paign around tax-free sav­ings ac­counts, es­sen­tially di­rect­ing clients to ap­proach reg­is­tered bro­kers. But a cam­paign specif­i­cally around the ad­van­tages of eq­uity own­er­ship, rather than other as­set classes, would surely be in the in­ter­ests of the JSE, its mem­bers and the public.

Other mar­kets, such as Canada, which has a sim­i­lar TFSA regime, have re­ceived a stronger re­sponse from the gen­eral public, par­tic­u­larly for eq­ui­ties-based ac­counts. In SA we need to work on build­ing a gen­eral un­der­stand­ing of eq­ui­ties and the way the JSE works, some­thing for which the JSE it­self should take re­spon­si­bil­ity. Its mem­ber bro­ker firms can fight it out to at­tract clients from the grow­ing pool of in­ter­ested mem­bers of the public.

We also recog­nise the role of the media in pro­vid­ing in­for­ma­tion and ed­u­cat­ing the public about their in­vest­ment op­tions. That is why we are proud to pub­lish the re­sults of In­tel­lidex’s re­search ef­forts and have built our ed­i­to­rial propo­si­tion around re­port­ing on in­vest­ment for the gen­eral public. If ev­ery­one does their bit, the coun­try will de­rive the long-term ben­e­fits.

In­di­vid­u­als should be free to build port­fo­lios how­ever they like, tak­ing on risk where it makes sense for their life stage and risk ap­petite

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