TOP STOCKBROKERS

Who’s looking up from the lockdown

As Covid-19 decimated markets after the lockdown was imposed in March, stockbrokers had to scramble to remain fully operational in “work from home” mode — even as trading volumes soared.

The pressure on their service desks was intense as client requests for assistance and guidance rocketed, and they had to switch to online for all client interactions and events.

Some handled it better than others.

Clients themselves reacted in different ways. Some switched focus from investing to short-term trading. Others looked for income replacement strategies as companies suspended dividends. Many increased their cash holdings as a form of safety. There was also a swing to derivative products and cash equities — liquid shares that can be easily redeemed for cash — as well as for structured products that protect against volatility. Offshore investments and resources also attracted a lot of interest.

So business for stockbrokers has been good during the pandemic. The above factors combined to boost trading activity, with volumes up sharply. Many brokers also report a sharp spike in new accounts.

AWARDS

Our survey, which combines client ratings of their brokers’ services with an Intellidex assessment of the brokers’ responses to a questionnaire, was conducted between July 8 and August 17, when the initial panic had subsided but volumes remained elevated. Clients had experienced how their stockbrokers had responded to the pandemic both in terms of investments and in coping with the shift to working from home.

Standard Bank’s Online Share Trading/Stockbroking (OST) is the Top Stockbroker of the Year. Its all-round strength in each category we assess makes it difficult to beat and it is a formidable presence in a highly competitive industry. It came second to Rand Swiss last year but won the overall award in the previous three years.

What has particularly impressed us over the years is that OST never ceases to evolve, adapting to changing market conditions but also looking to improve the customer experience.

Despite its size, it pays attention to detail, striving to be a market leader in every product category. The outcome is a stockbroker with an extremely powerful offering for every client archetype, from the young saver at the one end to an impressive family office offering for wealthy families.

Rand Swiss put in another strong performance this year to secure the Top Online Broker of the Year award. Client rat

“Clients continue to have a longterm investment outlook, are focused on truly global investment solutions

ings are particularly strong for this firm across all categories. It’s still a young company, formed in 2015, but has quickly entrenched itself as a leading player. Based on our survey results, the foundation for that success is its excellent client service levels. The firm also wins the Special Mention award for the top tax-free savings account.

Another young company that is keeping clients extremely satisfied is Unum Capital. It wins this year’s People’s Choice award, which is determined solely by client ratings. Unum, formed five years ago when it broke away from Vunani Capital, came third in the overall rankings.

Holding in check the strong drive from the young up-andcoming brokerages is one of SA’s oldest traditional brokers, Sasfin Securities, which is the Top Advice Broker of the Year. Sasfin itself was established in 1951 (as a textile trading business that expanded into financial services) but its roots go back even further: in 2000 it acquired Frankel Pollak Securities, which was founded in 1890 and was a pioneer of client portfolio management and stockbroking in SA.

Other awards go to IG SA, Top CFD Provider of the Year (see page 16), and EasyEquities, Most Improved Broker (see below). PSG Wealth’s Carlo Amorim retains his award as Top Relationship Manager of the Year (see page 12).

CLIENT REACTIONS

There’s never a good time for a market crash, but for SA the timing was particularly damaging. The pandemic hit when SA’s economy was already in recession and markets had been stuck in a low-growth environment, “going nowhere for the past decade”, as Afrifocus Securities CEO Eugene Chemaly puts it.

When market crises occur, the focus is usually on loss of value for investors. What doesn’t get much media play is the damaging loss of income for people living on their retirement investments. This has been particularly devastating during this crisis as share dividends dried up and interest rates dropped to record lows: the repo rate (the rate at which the Reserve Bank lends to commercial banks) was cut to a record low of 3.5% in July.

Chemaly says older investors have expressed “extreme concern” about yields and the dividend drought amid wider worries about the economy, with the government’s “lack of policy” resulting in

zero value creation. One client commented to him that the JSE “is a poverty trap”.

Almost across the board, the stockbrokers reported more interest in moving investments offshore. However, many investors have already maximised their offshore holdings in terms of the 30% limit set by regulation 28 that governs pension funds and other retirement investments.

The high trading volumes reflect numerous other aspects of client activity. Some is sensible portfolio adjustment, some is panic selling. Others look for bargains.

BP Bernstein director Francesco Sturino says that initially, clients were concerned about the slump in the market. “However, they did get more active during lockdown and started to take advantage of the lower prices, especially Sasol and Naspers N shares.”

Shaun Keeling, head of digital assets at EasyEquities, says: “We noticed a change in some clients’ behaviour as they are looking to ‘trade’ shares instead of investing in them, due to the market volatility.”

With such “bottom-fishing”, as Chemaly puts it, the need for decisions to be made on sound investment principles becomes even more important.

The Covid period has not been a complete frenzy, though. Giovanni Contardo, digital specialist at OST, says the initial fear and panic were replaced by a new appetite for equities as people “bargain-hunted and bought the dips”. They also sought sanctuary in offshore markets and rand hedges. Opportunistic buying, he says, came mainly from clients who were new to the market.

He says there were increased volumes in trading cash equities, a shift into cash holdings and lower-risk exchange traded funds (ETFs) and increased drawdown on investments.

“They shied away from small and mid-caps and are firmly in blue chips and ETFs.” Structured products that protect against volatility were also in demand.

FNB Stockbroking & Portfolio Management CEO Robert van Eyden says there has been great interest from clients seeking investment opportunities presented by the market volatility. However, the “macroeconomic uncertainty has become a thorn in investors’ sides” and this has made clients more cautious.

“We have seen a significant increase in the use of risk-mitigating tools on our platform, such as stop-loss/take-profit, and trading at limit and at best.”

These are mechanisms that automatically buy or sell if a share price or other instrument hits a predetermined level, while “trading at best” means going to whichever market has the best price for a stock — something that is possible now that SA has multiple bourses.

Grant Meintjes, head of securities at PSG Wealth, highlights how anxious many investors are because of the financial pressures they face. “This leads some to focus on the now, rather than planning for the long term.”

Also top of mind for many clients, he says, is the state of the economy and what it will look like after the lockdown, particularly given the dire state of state-owned enterprises. The impact of the rand’s depreciation against most other currencies is also cause for concern.

A more serene message comes from Sasfin Securities. “In general, we have found clients to be relatively calm during this period, more so than during the financial crisis in 2008,” says Ricki Tatz, the firm’s head of strategy implementation.

“They continue to have a long-term investment outlook, are focused on truly global investment solutions, and are keen on increasing their offshore investment holdings relative to their local exposure.”

Rand Swiss director Gary Booysen points out that different client segments responded differently to the changing market conditions. “A signifi

“Many have beefed up their offerings in areas where demand has been high — in offshore investment capabilities, for example, and expanding the range of investment options

cant percentage of traditional stockbroking clients used the recent market sell-off as an opportunity to deploy new funds, pointing to a fairly high level of market intelligence,” he says.

“Very few clients liquidated holdings during the initial panic stages of the market correction. Short-term online derivative volumes spiked in February and March but have since returned to more stable and expected patterns. We’ve seen an increase in demand for fullservice, advisory and discretionary accounts, likely prompted by the elevated levels of uncertainty in local and global financial markets.”

NEW CLIENTS

The spike in new clients reported by many brokers is interesting. Who would open an account in such troubled times? Many of the smaller boutique firms say their new clients are switching from the bigger players, but the newaccount trend was prevalent across firms of all sizes.

OST business manager Mark Humphreys believes there are multiple reasons. “Many people are turning to the stock market as a way to supplement their income amid difficult economic conditions,” he says, with the market volatility — “Sasol especially” — drawing in traders and speculators.

The lockdown itself is also a factor, he believes. “Many people now working from home find themselves with time and the ability to become more actively involved with managing their investments.” Public interest in the markets is also high because of the volatility stemming from the pandemic and moves in commodity prices. This was fuelled by increased media attention, which made financial markets “front of mind for many people”.

ThinkMarkets, a specialist CFD broker new to the SA market, saw the best and worst of client behaviour. Regional director Ridwaan Moolla says there was a huge increase in trading volumes, especially in shares and index trading.

“Clients were trying to take advantage of the volatility they saw in the market. We also saw huge growth in new entrants to the market with expectations of making loads of money.” But many of these new market entrants did not last very long because they knew little about trading and lost initial deposits.

“What we have seen is those clients who have taken the time to educate themselves and create and follow a proper trading strategy have been very successful,” Moolla says.

THE STOCKBROKERS

In times of crisis, client communication is always critical and stockbrokers have had to ramp this up while adapting to the work-from-home environment. Client engagements and scheduled events have had to move online but almost across the board, stockbrokers have hosted more webinar events to assuage panicky clients, to reassure them that sound investment principles still apply, to contextualise market movements and to offer good old-fashioned investment advice.

Many have beefed up their offerings in areas where demand has been high — in offshore investment capabilities, for example, and expanding the range of investment options. Others have even cut their fees in certain categories, mindful that clients are under financial pressure.

A problematic area has been the service desks. As the number of queries and calls for guidance spiked dramatically at the onset of the lockdown, telephone inquiries had to be redirected to personnel working at home.

While addressing all these issues and adapting their operating structures for lockdown, stockbrokers still have to contend with ever-evolving technology. Chemaly lists the tech developments that stockbrokers have to contend with as online/app trading, chatrooms for stocks, robo investing, algorithmic trading and alternative assets such as cryptocurrencies.

Booysen says: “The technology to access the market is becoming ubiquitous and more readily available.”

Now a new threat is developing: the rise of trading platforms such as Robinhood that offer commission-free trading. “The race to zero fees is on,” says Van Eyden, “with steadily decreasing fees making a significant difference to the growth of a client’s investments over time.”

Clients ranked their brokers for this survey after that initial scramble to adapt to lockdown conditions — and the ratings are extremely positive. That is testament to the high standards of the local stockbroking industry as well as its intense competitiveness.