UOB Kay Hian betting on scale and depth

Singapore

AT a time when the traditional retail broking business using self-employed remisiers has been on the decline - with retail investors going for self-directed online trading - UOB Kay Hian is betting on size and depth as it moves confidently ahead in its evolution.

Its recent willingness to adopt 100-odd remisiers from DBS Vickers Securities certainly raised many eyebrows. But the acceptance of the group of remisiers - and not just the top-performers - from a rival brokerage is part of its strategy to boost the scale and depth of services it can offer.

Esmond Choo, UOB Kay Hian's senior executive director, said: "This business is all about size and depth.

"The adoption of DBS Vickers' remisiers' business will improve our scale in Singapore. With scale, our overheads will be lower."

Mr Choo, who is involved in the strategic planning and development of the group's equity and capital market business, said the basic functions - and hence, costs - of running a stock brokerage are largely the same across players. These include finance, credit, custody and settlement, equity research, information technology and human resource departments, as well as costs like rent, utilities and other fixed operating costs.

"To achieve operating leverage, we need to drive as much business as possible to amortise these standing costs," he said.

After the transfer, UOB Kay Hian will have about 800 dealers and remisiers in Singapore, entrenching its position as the largest brokerage here. Backed by United Overseas Bank (UOB), it was the last one standing in a marathon courtship featuring other suitors. The process has involved subsuming DBS Vickers' remisier base en masse instead of hiring the remisiers individually. So far, about 100 DBS Vickers remisiers have agreed to the transfer, which will take place later this month.

The adoption has not been easy. Transfers are made more complicated by the issue of client ownership: Legally, clients brought in by remisiers belong to the house, as agreements are signed with the brokerage, not the remisiers.

On the flip side, others argue that without the unique proposition provided by remisiers, these clients may not have signed up with the house.

Hence, it is a great relief that what had been threatening to end up as a sad tale of displaced remisiers has been professionally handled by all parties involved and amicably resolved.

UOB Kay Hian is confident that its model will work, even as DBS Bank is looking to transfer its retail equity trading under DBS Vickers to the bank by year-end; DBS' move is part of its effort to provide for its customers a one-stop platform offering access to an array of banking, brokerage and wealth-management solutions.

To drive business and ensure its remisiers stay relevant, UOB Kay Hian aims "to develop skill sets to offer a comprehensive range of products to our clients".

The brokerage, which boasts of S$1.48 billion in net assets, has thus moved beyond traditional broking of local stocks to include alternative products; it provides high-value added services in corporate advisory and fund-raising, and also leverages its wide network of corporate contacts and deep distribution capabilities to execute initial public offers (IPOs), secondary placements and other corporate finance and investment banking activities.

In the financial advisory area, UOB Kay Hian operates under the capital markets services (CMS) exempt financial adviser licence, which allows its trading representatives to provide execution-related advice in a wide range of financial instruments such as stocks (local and overseas), derivatives like contracts for difference (CFDs), leveraged foreign exchange (LFX) and collective investment products such as unit trusts, futures and options.

Mr Choo said: "UOB provides execution services in some of these products under the various exemptions under its CMS licence. In addition, UOB provides Financial Advisory services under the Financial Advisers Act (FAA), in accordance with regulations prescribed by the FAA.

"This latter FAA business is where our business model deviates and where we serve a different client segment, that is, clients who are prepared to trade stocks and shares in a time-sensitive way, with little or no advice needed, as opposed to those who require assistance to put together a life-long investment plan."

As the financial services sector converges, the bank and UOB Kay Hian's business models would similarly converge, catering to their respective bases of loyal clientele.

"Increasingly, we are responding to our clients' needs in putting together a long-range investment plan, in which we have specialist sales with the requisite licences to deliver this service to our mass affluent and high-net-worth clients," he said.

UOB Kay Hian has also embarked on a more cost-effective way to deliver improved trading platforms to sales staff and agents so they can serve clients better.

"By improving our client-facing online trading platforms and tools across the region, we are further enhancing our clients' trading experience," Mr Choo said.

To date, the brokerage's distribution footprint spans the financial centres in Singapore, Hong Kong, Thailand, Malaysia, Indonesia, London, New York and Toronto; in addition, it has a research office in Shanghai and an execution presence in the Philippines.

Trades in Singapore shares now account for less than half of its revenues, compared to more than 90 per cent before. Equity trading in major global markets such as Hong Kong and the US accounts for the other half of its revenues. Net profit for 2018 was S$74.8 million, down from S$76.2 million in 2017, with the US-China trade spat having exacted a toll on the regional markets.