Financial Mail - Investors Monthly - - Cover Story -

Be­cause of the re­stric­tions, most bro­kers of­fer the same range of ETFs


providers of tax-free sav­ings ac­counts (TFSAs). Many have put in much ef­fort to cre­ate a com­pelling of­fer for first-time in­vestors to get in­volved in the stock market, and we sup­port them with this spe­cial men­tion of those we think have cre­ated the best of­fer­ings — and have done so even though profit mar­gins for bro­kers on such ac­counts are ex­tremely thin at best.

In­vestors can save up to R33,000 a year with a life­time limit of R500,000 with all gains free of tax.

TFSA reg­u­la­tions do not al­low di­rect in­vest­ments in listed eq­ui­ties but do al­low for ac­cess to the eq­ui­ties market through ex­change traded funds (ETFs). Such funds in­vest in a port­fo­lio of shares and rep­re­sent a cheap way to get ex­po­sure to di­verse equity in­vest­ment. Eq­ui­ties tend to be more risky than al­ter­na­tives such as bank ac­counts, but the ev­i­dence is clear that they out­per­form over five to 10 years. Stock­bro­ker ac­counts are also the most tax ef­fi­cient, al­low­ing in­vestors to avoid cap­i­tal gains tax and div­i­dend tax.

Be­cause of the re­stric­tions, most bro­kers of­fer the same range of ETFs. Our as­sess­ment con­sid­ered price, aware­ness, ease of opening an ac­count and client views. Some bro­kers have lob­bied trea­sury to relax reg­u­la­tions and al­low bro­kers to of­fer listed shares in the ac­counts, even if only for blue chip stocks such as the top 40.

Clients’ as­sess­ments of their bro­kers’ TFSA prod­uct was the main de­ter­mi­nant of the rank­ings. They rated their bro­kers on costs, the range of prod­ucts in which they could in­vest, ease of opening an ac­count and over­all qual­ity of the TFSA of­fer­ing.

First place was taken by the Pur­ple Group, in­clud­ing EasyEquities, GT Pri­vate Broking and GT247, which all of­fer the same ba­sic TFSA.

EasyEquities has gone out of its way to pro­mote TFSAs to first-time in­vestors and our re­search in­di­cates it has had con­sid­er­able suc­cess. EasyEquities, Stan­dard Bank and oth­ers have cre­ated spe­cial low-cost ac­counts just for in­vest­ing in ETFs.

Stock­bro­kers have largely kept in mind the over­all goal of get­ting more first-time in­vestors into the market, and have kept prices ex­tremely low. While low mar­gins and high vol­umes are the core busi­ness model for stock­broking gen­er­ally, with TFSAs this is even more of a fac­tor.

The TFSA regime seems to be work­ing — a sur­vey con­ducted by In­tel­lidex this year shows that from the launch of TFSAs on March 1 2015 to Fe­bru­ary 2017, a to­tal of 460,609 tax-free ac­counts had been opened, of which 30,205 were through stock­bro­kers. As­sets in stock­broking TFSAs to­talled R614m, giv­ing an av­er­age of R20,313 per ac­count.

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