A Stockbroker’s Point of View
One large reason for the slow growth of investors in the PSE (Philippine Stock Exchange) is that it is really not profitable for a traditional broker to accept retail accounts. By this I mean accounts that are below 1 million pesos. Why? Look at the numbers:
Many brokers now charge around 0.50% commission per trade. (Some even lower.) So, let’s say I am a licensed broker. I will charge 0.50%. So, if my client trades 1,000,000 pesos, the commission charge will be 5,000 pesos. Of that 5,000 pesos, the brokerage house quite often will take up to 60% so I am left with 2,000 pesos. From that 2,000 pesos, I will pay close to 30% in income taxes so I am left with 1,400 pesos. Of course you will say, that’s a lot but keep in mind, once a broker accepts an account, in essence becomes on call 24/7.
Also, there are a lot of admin stuff an individual broker still has to do throughout the year as per the PSE and SEC (Securities and Exchange Commission) rules. And given that most people are not really traders but still have a buy-and-hold mentality, that 1,400 may be all that I will make for months or even years. Yet, I will still be required to take every call and talk to that person for hours in between trades. All for 1,400 pesos. Now, if that is what I will make for 1M, imagine how much a 100k trade brings me? (Ans: 140 pesos) So, if you are a traditional broker, would you accept retail accounts? And if you do, can you properly service them all?
Of course, this is where Managed Funds are supposed to come in and pick up the slack. But they are also faced with similar issues. Specifically, the challenge of PROPERLY training an agent and the task of recovering the costs thereby incurred. It is sometimes frightening just how easy it is to be allowed to sell financial products in this country. Seriously, attend a two-hour seminar, take a RIDICULOUSLY easy “Test” and you are now allowed to sell a managed fund of one of the BIGGEST institutions in this country. That’s a recipe for disaster. Put these two things together and you can begin to see why over-all participation in the equity markets has not grown as it should.