Online trading competition hots up

Watch out for increased competition in on-line share trading services, with the possibility of some casualties.

The prediction comes from Barnard Jacobs Mellet Private Client Services (BJM PCS), a wealth manager and early player in the online trading 'space'.

Hobs Mpho Mojalefa, head of dealing at BJM PCS, says volume discounts are already being introduced by some online trading services while one favoured model from five years ago may soon have to be modified or face extinction.

"Other service providers - including Barnard Jacobs Mellet - have to vigorously differentiate their offering by stressing the added value of the advice-driven model," says Mojalefa.

Major banks active in the online share trading sector have begun to offer brokerage discounts at certain transaction levels.

Mojalefa adds: "This reflects the growth in online share-trading. Investors are increasingly comfortable with the concept of hands-on trading online. As volumes rise, it makes commercial sense to offer volume discounts.

"Percentage fees that were pegged at 100 or 120 basis points a year ago have come down to 60 basis points in some instances. This type of discounting is possible if you offer a pure execution function as you dont have to cover the cost of research and advice from skilled professionals."

The fee structure usually involves a flat fee and a percentage charge. It is up to clients to calculate the extent of any saving. As a rule of thumb, transaction values below R20 000 offer little, if any, cost benefit.

Online trading platforms from sophisticated wealth managers like BJM PCS publish frequently updated research on their websites.

"Client feedback is that research data and expert opinion on the state of the market and various sectors is greatly appreciated," says Mojalefa.

"As techno-phobia recedes, volumes will go up along with competition for this business. The challenge then is to clearly differentiate the high-advice product from execution-only platforms. That's why we commit to constant service enhancement and investment in cutting-edge systems.

"One thing were confident about; it doesn't matter how fast technology changes, good advice is not going to become obsolete."