Will iFAST steal other brokers' lunch?

SINGAPORE do-it-yourself (DIY) investors will have something to look forward to very soon with the imminent launch of a discount brokerage service by mainboard-listed iFAST Corporation.

The company's shares have surged to S$1.085, or 46 times earnings, defying brokers such as UOB Kay Hian which downgraded it last week after a strong rally.

Recently admitted as a trading member at Singapore Exchange (SGX) and a clearing member of The Central Depository (CDP), iFAST is expected to launch a Singapore stockbroking service soon with pricing similar to its aborted launch half a year ago.

If it sticks to last year's plans for a 0.12 per cent commission and a minimum of S$10, its offering will be one of the cheapest in town.

As discount brokers go, only Saxo Capital (0.12 per cent, S$15 minimum for normal accounts, excluding custody fees) and Standard Chartered (0.2 per cent, S$10 minimum for normal accounts) come close.

Most other brokers have significantly higher rates and minimums.

iFAST is no doubt hoping that the carrot of cheap execution will lure customers to its other services, such as its wealth management and mutual fund distribution platform.

By holding client assets under custody, iFAST might be able to analyse what clients own, and better cross-sell other asset classes and funds to customers to diversify their holdings.

Now, it's about time that Singapore had a homegrown tech platform challenging the incumbents.

In a low return environment, cheaper stock trading is hugely beneficial to beginner retail investors.

The incumbents will likely see some business slip away. But how big an impact iFAST will have on local brokers might still depend on the pool of DIY investors here.

Anecdotally, many people still prefer to have someone else do the trading for them. They need their hands held. They don't want to immerse themselves in the details.

This is where the traditional full-service broker still has a role to play.

Not only can the broker offer research coverage, it can also offer contra trading, essentially lending money to customers to finance short-term trades. This is something iFAST will not be able to do.

Some trading reps with Phillip Securities are even providing fund manager-like services through securities wrap accounts.

Another reason to be cautious on iFAST's potential is the fact that many existing brokers already offer discounted commission rates to key clients, at say 0.15 per cent.

Meanwhile, some brokers are already reducing their rates or even matching iFAST's potentially incoming low rates, for their cash upfront trading accounts.

Yet the iFAST threat is real. And beyond price wars, there are many other things that the industry can do to draw in more brokerage customers, DIY or otherwise.

Investments have to be made to upgrade trading platforms.

For one, the technology behind authenticating yourself and trading can be further streamlined. Many brokers still require you to type in a password for every trade. This is quite cumbersome. Voice and fingerprint technology can be used.

Two, platforms should offer risk management services, such as the ability to set stop losses.

Three, "fill or kill" order choices should be more prevalent to avoid the problem of partial fills on illiquid small caps.

Four, SGX should continue to offer market depth access for free beyond end-June to encourage brokers to offer it to their clients.

Five, brokers should become a lot more active at mass e-mailing and Whatsapping clients with promotions and stock ideas. One day, technological improvements should make sending tailored messages easier.

Ultimately, dry times in Singapore mean the brokerage industry is ripe for a shake-up.

With better services, consumers will not mind paying a little bit more.

The industry has to invest in tech, its own people, education and marketing. Otherwise, it will continue to have its lunch eaten by free information available on the Internet, and by discount brokers such as iFAST.