Use a Broker to Whom You Are Important

Whether buying or selling, there are distinct advantages to finding and doing business with long-term-oriented stockbrokers who recognize that it is in their interest to build and maintain mutually beneficial relationships with clients. 

• If customers feel that their best interests are being served and that brokerage commissions are a secondary consideration, long-term relationships are likely to ensue. 
• By contrast, brokers who charge exorbitant commissions or routinely recommend trades designed more to generate commissions than investment profits will eventually lose customers. 

The challenge is to find one or more brokers with whom you feel comfortable. 

• An appropriate broker will possess a balance of experience and desire, a commitment to the investment business, and a willingness to sacrifice immediate commissions for the sake of  long-term relationships. 
• You want a broker with sufficient clout within his or her firm to provide you with access to analysts and traders, one with experience to handle your account properly and to know when to call you and when not to waste your time. 
• You don't want a totally inexperienced broker who is learning at your expense, a complacent broker satisfied with mediocre results, or one so successful that your account is relatively unimportant. 

Michael Price and Bill Ruane would have no problem capturing the undivided attention of any broker; they would be very important clients for anyone.

• Other investors must work harder to find one or more brokers to whom they will be important clients. 
• One possibility is to develop a relationship with a fairly young but capable broker to whom your account is currently very important and one who will gain importance and clout within the firm over time.

Comments:

I may have to look for a few more brokers to find out more.  :-)

How should I choose a stock brokerage?

Rule - Know what you don't need

Full service brokers
Offer help and advice over the phone or in person
Charge higher fee per trade
Advice is, at best, an educated opinion.
Becomes an expensive luxury that reduce investment returns.

Discount online brokers
Self directed stock research services
Fast, easy trade executions
Convenient, cost-effective solution
Focus on low cost brokers with a clean, clear interface.

Stay in Touch wi th the Market

Some investors buy and hold for the long term, stashing their securities in the proverbial vault for years.  While such a strategy may have made sense at some time in the past, it seems misguided today.  

• This is because the financial markets are prolific creators of investment opportunities.  
• Investors who are out of touch with the markets will find it difficult to be in touch with buying and selling opportunities regularly created by the markets.  
• Today with so many market participants having little or no fundamental knowledge of the businesses their investments represent, opportunities to buy and sell seem to present themselves at a rapid pace.  
• Given the geopolitical and macroeconomic uncertainties we face in the early 1990s and are likely to continue to face in the future, why would abstaining from trading be better than periodically reviewing one's holdings?

Being in touch with the market does pose dangers, however.

• Investors can become obsessed, for example, with every market uptick and downtick and eventually succumb to short-term-oriented trading.  
• There is a tendency to be swayed by recent market action, going with the herd rather than against it.  

Investors unable to resist such impulses should probably not stay in close touch with the market, they would be well advised to turn their investable assets over to a financial professional.

Another hazard of proximity to the market is exposure to stockbrokers.

• Brokers can be a source of market information, trading ideas, and even useful investment research.  
• Many, however, are in business primarily for the next trade.  

Investors may choose to listen to the advice of brokers but should certainly confirm everything that they say.  Never base a portfolio decision solely on a broker's advice, and always feel free to say no.

Are remisiers still necessary?

Wednesday June 2, 2010

Are remisiers still necessary?
Personal Investing - By Ooi Kok Hwa


Online trading cheaper so remisiers should offer better and value-added services


MEMBERS of the general public have been complaining about the services of remisiers as they feel there is no difference between buying shares through remisiers and online trading. They feel that remisiers do not provide any value-added services.

Whenever they call to buy or sell shares, remisiers let the investors decide themselves whether to buy or sell stocks at the current prices.

They say remisiers seldom provide their views on whether to buy now or later as sometimes investors may be able to get better prices if they purchase the stocks later.

Some investors prefer online trading as some stockbroking firms provide the minimum brokerage cost of about RM10 per trade compared with the minimum brokerage cost of RM40 per trade if they use the services of remisiers.

On the other hand, a lot of remisiers have been complaining about their business. Some complain that the minimum brokerage cost of about RM10 per trade for online trading has put them at a disadvantage as their services are more expensive at the minimum brokerage cost of RM40 per trade.

In addition, despite the high stock market trading volume, they also notice that not many retail investors are actively involved in the stock market.

As a result, some remisiers are quite negative about their own profession.

The Securities Commission launched the Continuing Professional Education (CPE) programme and has made it mandatory for all licensed persons in the Malaysian capital market since 2001.



'You still need me'? asks a remiser.

Given that remisiers are licensed holders and have been attending classes over the past 10 years, we notice that their investment and financial knowledge has improved over the years.

At present, remisiers are looking for more advanced courses instead of simple courses like introduction to investment or financial knowledge or products. Hence, we feel that remisiers have the ability to provide better and value-added services to investors.

There are two main transaction costs when purchasing stocks, namely explicit and implicit costs.

• Explicit costs refer to direct costs of trading like brokerage commissions, stamp duty and clearing fees whereas 
• implicit costs refer to indirect costs of trading like market impact (or price impact), delay cost and missed-trade opportunity costs.

Market impact refers to the price movement caused by placing the trade in the market, delay cost is the inability to complete the trade immediately due to the order size and market liquidity, while missed-trade opportunity cost is related to the unrealised profits or losses attributed to the failure to complete the trades.

For example, Stock A is currently selling at RM1.98 (buying price) to RM2 (selling price). Mr B intends to buy 50 lots of Stock A and to save on brokerage commission by buying online. However, he is not aware that there is some good news on and strong buying interest in Stock A.

A good remisier should be able to advise Mr B to give market order and buy Stock A at the best available selling price of RM2, rather than give a limit order of RM1.98. If the day’s closing price for Stock A is RM2.10 and Mr B did not manage to accumulate the stocks at RM1.98, the missed-trade opportunity to Mr B is 5% ((RM2.10-RM2)/RM2).

This missed-trade opportunity cost of 5% is much greater than 0.6% that he pays on the brokerage commission.

We tend to agree with the general public view that not all remisiers are willing to commit themselves to get the best prices for their clients. One reason may be the difficulty in judging whether the buying interest will persist throughout the whole day.

As a remisier, his key role is to get the best execution prices for his clients. We feel the minimum brokerage cost of RM40 per trade is fair to the remisier as the implicit cost of buying a stock is much greater than this explicit cost.

The RM40 is also used to cover the time required to monitor and to get the best prices; time spent on reading market developments and corporate news; costs required to acquire market information and attend classes; and administrative work involved in helping their clients on rights issues or any other corporate exercises.

In Malaysia, we have about 8,000 remisiers and dealers with a population of 28 million versus 3,000 remisiers with a population of about 4 million in Singapore. We strongly believe that the remisiers’ services are still required and have the potential to grow.

Nevertheless, remisiers need to upgrade and add more value to their services, on top of providing the best execution of trades to their clients, to differentiate their services from online trading.

The writer is one of the active CPE course trainers. He is also an investment adviser and managing partner of MRR Consulting.

http://biz.thestar.com.my/news/story.asp?file=/2010/6/2/business/6381518&sec=business

Costs of a standard equity transaction

The cost of a standard equity transaction is made up of:

• a stockbrokers's fee,
• taxes,
• a levy for the adminsitrative cost of the electronic settlement system,
• insider trading levy and
• other compulsory administrative charges.

Brokerage

Your broker could charge you a percentage of the value of your trade, depending on the size of the trade and the nature of the service required.

• All brokers charge a minimum per deal, even if your order is very small.
• If your investment is too small, the charges could dilute your returns considerably.  Your investment would need to deliver sizeable returns before expenses are recovered.