After a frenetic 2020, traders are more measured in their investment decisions, with diversifying for the long term a key feature.
Compared to the chaos of last year, securities brokers operated in a relatively calm environment in the period that this year’s survey assesses. Questionnaires are completed by August and last year, brokers had been scrambling to convert to working from home without disrupting services to clients, who, in the aftermath of the market crash and within the grip of that first hard lockdown, were increasing in numbers and trading more than ever.
This year, most brokers report that trade volumes are still strong. Some experienced further volume growth; for others the surge in volumes after March last year plateaued at levels higher than pre-pandemic levels. Quite a few do report declining volumes, though, with one firm pointing out that clients are trading less in local equities but more in offshore instruments.
Dampening the overall buoyancy, many clients are suffering financially from the effects of pandemic.
"Covid has put pressure on income and we have seen clients having to withdraw from the markets to put money back into their businesses or fund income shortfalls due to retrenchments or furloughs," say Sasfin’s Ricki Tatz and Flynn Robson. "The past year has been a challenging one for South Africans and the need to stay close to clients in these times has intensified. Our high-touch model has supported that, but we have seen a more cautious approach to the investing behaviour of our clients."
There is also despair over SA’s general macroeconomic picture. Afrifocus Securities MD Eugene Chemaly says older investors are extremely concerned about the lack of dividends and "we have seen investors bottom-fishing". Others fear the effects of government policies on the markets. "The JSE is a poverty trap," one client told him.
The above touches on just some of the varied reactions of retail clients; brokers have to cater to the gamut of human emotions and behaviours with every market-moving event. This is where traders in contracts for difference (CFDs) come into their own. As IG Markets SA told us: "Our clients are a mix of optimism and pessimism as they are able to go long and short on any market."
AWARDS
It’s been quite a year for Rand Swiss: Top Securities Broker of the Year, winner of the People’s Choice Award, Top TFSA (tax-free savings account) Provider, second place in both the online broker and most improved broker categories, and third in the advice broker rankings.
No firm can excel in this survey unless clients are highly satisfied with its offerings, and clearly Rand Swiss is hitting a winning note with clients — it also won the overall award in 2019. It believes this is because of its business model; the Rand Swiss team have "skin in the game" — they invest their own money and family funds with that of their clients. "We are also personally invested in the success of the business," says director Gary Booysen.
"The principal-agent problem is almost nonexistent as the people responsible for investment decisions, product creation and the overall business are the ones you will deal with as a client. If you’re unhappy with the way a statement looks, we’re likely unhappy with the way a statement looks, and are likely already working to fix it."
Standard OST/Stockbroking takes second place, having won the overall award last year. It’s turning into quite the battle between it and Rand Swiss — Standard OST won the award from 2016 to 2018 but was pushed into second in 2019 by Rand Swiss. Standard has also enjoyed much success in earlier years of this survey and its all-round strength — and the attention to detail it pays to clients across all archetypes — make it a formidable competitor.
Sasfin Securities is the Top Advice Broker of the Year for the second year running. This is a firm that has stuck to its traditional stockbroking model of giving advice to clients on their investments for nearly 70 years, while adapting to dramatic changes in the market’s increasingly technology-driven operating environment, all the while accommodating the ever-evolving needs of clients.
PSG Wealth is the Top Online Broker of the Year, jumping from fifth spot last year. It also finished second in the top advice broker category and third in the overall broker award — an impressive performance that reflects its all-round strength.
In our two other awards, IG Markets SA is the Top CFD Provider and EasyEquities is the Most Improved Broker. These and other awards are covered in more detail elsewhere in this survey report.
In the methodology section we explain in detail how we derive the scores for each firm. Broadly, client ratings have the biggest influence — this year 6,599 retail investors rated their brokers on numerous products and services. The top performers in these awards, therefore, have an emphatic endorsement from their clients.
NEW CLIENTS
Along with trading volumes, new client numbers were on a pleasing upward slope for most brokers, though not at the high rate experienced during the March-June 2020 lockdown, when those fortunate enough to continue earning an income while working from home found themselves with extra cash — petrol expenses had all but disappeared and they couldn’t go out to eat at a restaurant or, indeed, buy a pair of flip-flops.
That was a global phenomenon — JMP Securities estimates the brokerage industry added 10-million new clients in 2020. Around the world, people were stuck at home with more disposable income than usual and turned to the markets. At first, many were out for a quick buck, focusing on short-term trades, according to a survey by US financial services group Charles Schwab. From a pool of 1,000 Americans aged 21 to 75 from a diverse range of demographics, 476 respondents invested in the stock market. Of those, 15% started doing so in 2020 and these were from all different age groups.
The local scenario appears to be similar. Last year client trading had a frantic air about it as some scrambled for safety and others switched to short-term trading, while many had to try to find income-replacement strategies as dividend payments dried up. This year, while still highly active, clients are more forward-looking, planning for the longer term with a desire for more diversification a strong driving factor.
Booysen says: "The feeling on the desk is that many clients have settled back into the markets comfortably. The longer-term investors are pleased with the returns, especially those who added to portfolios during weakness. The slowly reducing overall market volatility has also helped to soothe nerves while the active traders still seem to be enjoying instrument-specific volatility.
"Overall, in spite of Covid and lockdowns, we seem to be back to business as usual. I would say clients are neither overly greedy nor excessively fearful."
PUSH TO DIVERSIFY
Intellidex has been running this survey for 12 years and each year we chat to brokers about how clients are feeling. Each year’s market peculiarities have clients responding in various ways, be it the bulls making an all-too-rare appearance or the ever-present threat of the bears. But the one consistent theme every year is: "Clients are seeking more offshore exposure."
This shows a resolute pessimism among SA retail investors, more in the country’s economic prospects — often justified in the face of some eye-rolling government policies — than in its equities market, which has performed quite admirably since the market crashed last March and the world went into hard lockdown. The US, however, continues to set the pace in the post-Covid recovery.
On March 19 2020, the JSE all share index plunged to 37,963 points, its lowest since 2013. Had investors left their portfolios alone when the pandemic hit, the index gain now would be nearly 67%. The S&P 500 is up 94% from its trough.
Responses from brokers this year, though, reflect wider thinking from clients — it’s not a blind rush for the exits. While investors are still looking to maximise their offshore exposure, that is part of a larger strategy of improving their diversification, looking also at alternative assets. Even within domestic investments, the push to diversify is strong.
"We’re seeing the start of the diversified trader," says Ridwaan Moolla, regional director of ThinkMarkets. "Index trading has seen a big resurgence and, as the volatility in cryptocurrencies has eased a bit, many clients have spread trading across other asset classes, with a big dip in trading volumes of crypto."
He says interest in exchange traded funds (ETFs) continues to rise strongly, particularly those with offshore exposure. "Clients seem to be carefully mixing their local and offshore exposure. A big change is ETFs that are more evenly weighted are also becoming more in demand."
Moolla says most new investors tend to gravitate to ETFs but might then move to shares, focusing on growth stocks. "Many are investing in the resource and retail sectors. We thought we would see a big outflow of clients investing offshore, but this has not really been the case as more people are happy to trade in international shares but invest in local shares and get exposure to offshore through ETFs.
"Demand, however, for low-cost offshore investing is picking up and if the JSE can hold on to its good performance so far this year, it will see local investing grow more than offshore."
Lead analyst: Phibion Makuwerere
Research manager: Heidi Dietzsch
Top relationship manager of the year
Unum Capital’s Taahir Joosub is the Top Relationship Manager of the Year, moving up from second last year. PSG Wealth’s Carlo Amorim, winner of the inaugural award in 2019 and taking the top gong again last year, drops into second.
This award was introduced to recognise individual excellence in the securities broking sector and has proved to be a highly competitive category. All firms that perform well in this survey have to be effective in maintaining high levels of client satisfaction. When it comes to the individual relationship managers, clients are effusive in their praise for the good ones.
One of Joosub’s clients says: "Taahir gives advice like it’s his own money. He treats every client like gold even when they are the smallest of clients."
Another one reports: "Being a first-time investor trading on the stock market, I have never felt so at ease and confident placing orders. Taahir has a way of explaining things in a manner that makes me understand exactly how things work and gave me the confidence to invest. I can call him a number of times at any time of the day and he will gladly assist me with information on any topic that I may need help with."
Amorim’s clients hold similar positive sentiments. One says: "Carlo not only has all the market knowledge to assist me when I call him, but he always takes time to listen and engage with me when discussing the market or my portfolio. While we are on the phone I always feel like I am his most important client."
The winner is determined by client nominations and the motivations they provide, weighted according to firm size and client base. Intellidex uses a combined qualitative-quantitative assessment to determine the top three.
SPECIAL MENTION: Most improved broker
In the 12 years that Intellidex has conducted this survey, we’ve been extremely impressed with how the top-ranked firms, whether large or small, constantly strive to improve.
While technological innovation drives many changes, the emphasis is always on improving the client experience.
The Most Improved Broker Award was introduced in 2018 to recognise such improvements over the past year. Scores are determined by a combination of client feedback and responses to the questionnaire sent to the firms.
EasyEquities has always been renowned for its innovation and takes this award for the third year in a row, driven by strong ratings from clients.
Rand Swiss is second, with ThinkMarkets — having entered the SA market only last year — taking third.
SPECIAL MENTION: Top tax-free savings accounts
Rand Swiss wins the 2021 Top TFSA of the Year Award, which is determined solely by clients.
It’s the second year in a row that Rand Swiss takes this award, just edging out Unum Capital, with EasyEquities third.
Securities brokers are key providers of tax-free savings accounts (TFSAs) and, despite profit margins for brokers on such accounts being extremely thin at best, many have worked hard to create a compelling, low-cost offer for first-time investors to get involved in the stock market.
TFSAs were introduced by the government in 2015 specifically because SA’s household savings rate is far too low.
The broking community came to the party to encourage investments, with many keeping costs as low as possible and some discarding fees altogether.
We support those endeavours with a prize for those whose clients think they have the best offerings.
A TFSA is an important component of any investment portfolio. Apart from using TFSAs for the obvious benefits of receiving greater returns because you’re not paying tax, they can be used as a top-up to an existing portfolio or to diversify it, for example, to increase exposure to offshore investments or resources, or to save for a long-term goal, such as children’s education.
Investors can save up to R33,000 a year in a TFSA 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). Most brokers offer the same range of ETFs.
Clients who have opened an account with their broker rate the broker on costs, ease of opening the account, range of products and service levels.
SPECIAL MENTION: CFD providers
IG Markets SA wins the Top CFD Provider of the Year for the second consecutive year, with ThinkMarkets, a relative newcomer to the SA market, taking second place.
A specialist supplier of contracts for difference (CFDs), IG is part of a global company that is the largest provider of CFDs in the world by published financial statements, excluding forex, and offers CFDs on 17,000 instruments globally.
Scores for this award are derived from a combination of client feedback both on the CFDs and research offered, combined with an Intellidex assessment of the online capability, trading costs and credit riskiness of the provider. Better scores for risk are given for firms where the counterparty for CFDs is clear and has a large balance sheet. Small or obscure balance sheets receive lower scores.
IG excels on all counts and since winning the award last year it has increased the size of its local client service team by 50%, ensuring that client satisfaction remains strong.
ThinkMarkets launched in SA early last year as a CFD specialist, though it now also offers equities trading, with advice services being launched later this year. Also part of an international group, it is positioning itself as a competitive value broker, charging zero commission on local and international CFD shares and indices and 0.25% brokerage for equities and exchange traded fund investments.
Satisfaction levels are assessed from CFD-trading clients’ opinions on the range of CFD products offered, the quality of their brokers’ interaction with them and the support they offer. We use those rankings, costs and our own investigations to determine scores. BP Bernstein acts as an agent for Standard Bank and Nedbank, therefore it scores high on credit risk as well.
CFDs are useful for shorter-term traders as they are generally cheaper to trade in and out of than normal shares but become more expensive the longer the holding period.
CFDs can now be traded on the JSE, which eliminates the credit risk as it guarantees settlement, or "over the counter" between the broker and client. The latter type has been going for longer and still makes up the majority of CFD trades. CFDs imply credit risk because brokers can end up owing traders money if the underlying asset prices change. That should be no problem for brokers who manage their risk correctly but can become a big problem if they don’t. While we assess this risk as comprehensively as possible, without conducting a full systems audit it remains very difficult to do.
We asked brokers to identify just which balance sheet was the counterparty to the CFD contracts they wrote and to explain how they segregate client money from that of the firm’s. We score brokers highly if there is a clear and substantial balance sheet standing behind the contracts and mark them down if the balance sheet is small or hard to assess.
It is also important to clients that CFD trading facilities are easy to use and costs are low. Costs have two sources: the charges for CFD transactions and the implied leverage in transactions. Often low fees are paid for by charging high interest rates for leverage, or paying low interest rates for short exposures. We measured the difference between these, which is known as the spread.
PEOPLE’S CHOICE AWARDS: Rand Swiss
Rand Swiss, winner of the overall broker award, also takes the coveted People’s Choice award. Both awards reflect the high levels of client satisfaction that the firm has generated since its formation in 2015.
Its client base is divided between online traders and high-touch, full-service advisory clients, and client comments reflect excellent advice and research support, with "market-moving" events quickly addressed with clients. One client said: "My experience with Rand Swiss is amazing. I am glad I found this broker because it ensures I perform well on the markets and they always have your back. This is the best broker money can buy."
EasyEquities takes second place, shooting up from sixth last year. This client comment typifies the general opinion of clients: "They make buying and selling stock so easy, they really go above and beyond to demystify this form of investing. The concept of fractional ownership is also a game changer for the average person. I absolutely love EasyEquities!"
Unum Capital takes third place this year, having won the award last year, followed by Sasfin Securities.
The People’s Choice award is highly coveted because it is based purely on client opinions. This year 6,599 clients participated in our online survey, ensuring a high degree of credibility for this award, in which clients rank their brokers on factors that include satisfaction levels on a range of services and products, value for money, overall satisfaction levels and clients’ likelihood of recommending the broker to family or friends.
Overall, the standards are exceptionally high across the board, with all firms highly regarded by most of their clients. More than 40% say they are "extremely likely" to recommend their stockbroker to friends or family, with 30% "very likely" to do so.
Clients are typically white (51%), male (82%), have a professional qualification and are high-income earners: 36% are from households that earn up to R40,000 a month, 23% earn between R40,000 and R70,000 and 16% earn between R70,000 and R100,000. At the top end, 25% earn more than R100,000.
METHODOLOGY: Top securities brokers survey
The top securities brokers survey is conducted annually by Intellidex, a specialist financial capital markets research house.
This is the 12th year we have assessed SA’s retail securities brokers. This year 6,599 retail investors (2020: 6,540) completed an online client survey, representing a substantial sample of the market. The high number of client votes entrenches the credibility of the survey findings. While 13 brokers officially entered the competition, client participation roped in 32 brokers, with 15 of these seeing at least 60 of their clients participating in the survey.
The structure and approach of the project has been informed by the experience we have built up over past years as well as feedback from industry participants and their clients.
Overall, we aim to blend qualitative client feedback with data provided by the firms and Intellidex analysts’ judgment where necessary.
The awards recognise firms in two main categories: the Top Online Broker and the Top Advice-Based Broker. This division recognises the two main types of broker as well as similar financial service providers that operate in the market and the types of services in which clients are interested.
These two awards are complemented by an overall award, the Top Securities Broker of the Year. There is also an award based purely on client feedback, the People’s Choice award, and we recognise the top brokers in contracts for difference (CFDs) and tax-free savings accounts as well as the most-improved broker. We provide assessments of which firms cater best for specific client segments; and specify which firms excel in different categories, such as value for money and the range of instruments available. Each of these has different calculation methodologies, which we explain below.
Finally, there is an award to recognise individual excellence: the Top Relationship Manager of the Year. The winner is determined by client nominations and the motivations they provide, weighted according to firm size and client base.
The firms we cover come in two types: registered stockbrokers and registered financial services providers (FSPs) that offer stockbroking-like services. We have changed the name of the survey this year (from Top Stockbrokers) to reflect that. Registered stockbrokers tend to be older firms focused on personal relationships with clients while FSPs tend to be more execution focused. 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. Because our priority is to provide a useful service to members of the public, for whom the difference is often irrelevant, we incorporate both registered stockbrokers and FSPs in our survey.
The research follows three legs. First, a comprehensive questionnaire is sent to brokers, asking for details of their products, pricing and market positioning. Second, a mystery shopping and desktop research exercise is undertaken by Intellidex analysts to verify information provided and assess transparency and responsiveness. Finally, a major online survey is undertaken of clients. Clients rank their brokers on numerous factors. These scores determine the important People’s Choice Award and feed into the other scoring categories where relevant.
The Top Advice-Based Broker and Online Broker scores reflect a combination of Intellidex’s views and client feedback. For the Top Advice-Based Broker, the client input consists of ratings for advice on investment decisions, quality of fundamental research, buy and sell recommendations, macroeconomic analysis, quality and service levels of telephone-based trading, advice on corporate actions and value for money.
For the Top Online Broker, client input includes service with IT queries, help with understanding the trading platform, educational assistance, ease of use of the online trading platform and access to data.
The Top Overall Broker award is informed both by client input and by an Intellidex assessment. The assessment takes into account six equally weighted dimensions: cost of trading; a mystery shopping exercise (which looks at responsiveness and transparency); available instruments and trading tools; client support and education tools; online services and offline services. The client input is a consolidation of the client input used for the online and advice-based categories. Then we provide an assessment of brokers that are suitable for different client types.
The People’s Choice award is based on client feedback on several factors. Clients rank their brokers on satisfaction levels on specific services and products, value for money, overall satisfaction levels and clients’ likelihood of recommending the broker to family or friends.
The top tax-free savings account provider is determined solely from client feedback. Clients who have opened an account with their broker rate the broker on costs, ease of opening the account, range of products and service levels.
The top CFD provider is also determined from a mix of client feedback and an Intellidex assessment of the online capability, trading costs and credit riskiness of the provider. Client opinion on CFD research is considered as well. Better scores for risk are given for firms where the counterparty for CFDs is clear and has a large balance sheet. Small or obscure balance sheets receive lower scores.
The methodology will continue to evolve to stay abreast of industry changes and as we receive further feedback.
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