STOCK­BRO­KER OR NOT? HERE ARE THE FACTS

Financial Mail - Investors Monthly - - Cover Story - writes Stu­art Theobald.

THE FIRMS WE COVER

come in two types: reg­is­tered stock­bro­kers and reg­is­tered fi­nan­cial ser­vices providers (FSPs) that of­fer stock­broking­like ser­vices,

Reg­is­tered stock­bro­kers tend to be older firms fo­cused on per­sonal re­la­tion­ships with clients, while FSPs tend to be on­line- and ex­e­cu­tion-only, and fo­cused on de­riv­a­tives such as con­tracts for dif­fer­ence.

Only reg­is­tered stock­bro­kers are al­lowed to call them­selves “stock­bro­kers” in terms of leg­is­la­tion, though it has be­come com­mon us­age to re­fer to ev­ery­one who sup­plies stock­broking-like ser­vices as stock­bro­kers.

There is more to it than the name though: clients of reg­is­tered stock­bro­kers hold their se­cu­ri­ties in their own name in an ac­count di­rectly with the JSE. FSPs tend to pro­vide their ser­vices us­ing third par­ties and hold client as­sets in a seg­re­gated en­tity that has an ac­count with the JSE.

The dif­fer­ence be­tween the two is neg­li­gi­ble to most clients. FSPs tend to be cheaper be­cause they avoid a lot of the costs that come with be­ing a reg­is­tered stock­bro­ker, such as main­tain­ing mul­ti­ple JSE ac­counts. Their clients do face some­what more risk in that their as­sets are tech­ni­cally in the name of their bro­ker rather than in their own name with the JSE. So, if the firm were to hit the skids, it could be dif­fi­cult to ex­tract client as­sets from the mess.

A reg­is­tered stock­bro­ker is also much more able to man­age is­sues such as cor­po­rate ac­tions and vot­ing on com­pany res­o­lu­tions. But for most re­tail clients, that is not im­por­tant.

As in pre­vi­ous years, there have been calls for us to ex­clude FSPs from this sur­vey and re­strict it only to reg­is­tered stock­bro­kers. We have not done this, be­cause our pri­or­ity is to pro­vide a use­ful ser­vice to mem­bers of the pub­lic, for whom the dif­fer­ence is of­ten ir­rel­e­vant. Also, the world­wide trend is for stock­bro­kers to be­come more univer­sal wealth ser­vices providers in which the ac­tual stock­broking ac­tiv­ity is a shrink­ing com­po­nent.

We recog­nise that not hav­ing a JSE li­cence does en­able such firms to of­fer cheaper ser­vices, but not some of the more com­plex share own­er­ship rights that larger in­vestors might de­mand. Mem­bers of the pub­lic should be aware of that when choos­ing their bro­kers.

We note in the de­scrip­tions of each bro­ker when they are reg­is­tered only as an FSP.

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