Which brokerage should I use?

This is a question I've received from a couple of friends who are new to investing, so I thought that it'll be fantastic if I could write about this directly on my blog for the benefit of everyone else who has the same question. Please also note that this post contains my personal experiences and opinions to a large extent.

(image source: clipartfest.com)

Well to begin with, I cant exactly give anyone an answer as to which brokerage they should use if they were to start investing, but I can certainly tell you what I am using, and why. From there, perhaps you could then explore your options. 😁

Before we begin, the table below is just an overview of a few (not all) brokerages and their fees, which as you can see, are mostly similar, note that different % fees apply for amounts > $50k, but I have left them out of here for simplicity's sake.

Brokerage	Minimum Commission	% Commission Fee (<$50k)
DBS Vickers	$25	0.28%
OCBC Securities	$25	0.275%
Standard Chartered	$10	0.20%
UOB Kay Hian	$25	0.275%
Phillip Securities	$25	0.28%
Maybank Kim Eng	$25	0.275%

Currently, amongst these (and many other brokerages available), I have opted to use OCBC Securities and Standard Chartered Online Trading. Please also note that I have not tried other brokerages, so I am currently unable to give an opinion on them.

I think there are a few things you could potentially weigh over here:

1. Customer Service

I think this is an important factor as you may be handling calls/ be required to make calls to the brokerage at times. However this is also a subjective matter, and should be determined by your own personal experience. Although it is also often hard to determine initially whether or not the customer service suits your preference on your first visit (e.g. to open your account), or by your first call as the staff in charge at their call centres often rotate,  but I believe that eventually, experience will tell you whether or not you should stick with your brokerage, or switch to another.

Here are my personal experiences with the two brokerages I'm using thus far,

Standard Chartered: when I had to open my account at standard chartered, the staff who attended to me was pretty impolite and sounded even a little condescending. However, my experience with the staff members at the call centres have so far been great, they were all very polite and patient, which is one reason why I continued using this brokerage.

OCBC: conversely, the staff who helped me with opening my account was very polite, (well he did want me to fill up a customer satisfaction form subsequently, so I don't know if that played a part, but I'll give him the benefit of the doubt. Follow up was not fantastic though, basically, OCBC has a YIP that gives young investors slightly lower brokerage fees, however, the polite staff member who assisted me with the account opening did not inform me that the nett difference is only refunded subsequently. (I will be talking about this later) But basically, I was wondering if I was actually "registered" under the program, and I had to make multiple calls to their call center as well as write a few emails in an attempt to resolve this issue. Furthermore, the majority of the staff members who attended to my calls did not seem to know how to resolve the issue and often gave me superficial answers. I still use OCBC at times, but am less inclined to for the above reasons.

2. Brokerage Fees

This is very important as well. Especially for those with shallower pockets like mine. Most brokers charge a minimum commission fee. In my opinion this is probably one of the reasons why there hasn't been much interest in the local exchange and also why there hasn't been much trading activity, even though there may be so many decent stocks listed on our exchange; simply because of the high commission fee, and this is so even for online trading. (note that call-trading is still available but seldom used, and is way more expensive)

2.1. OCBC Brokerage Fees

For OCBC securities, the online trading minimum commission fee is $25. That is a lot of money, as this is the minimum cost per trade. 

Basically, if your trade value (the value of the stocks you're purchasing) is lower than $50,000, a 0.275% (of the total value) commission is what you have to pay, however, if the 0.275% falls below $25, then you would have to pay $25.

To put things into context, basically for the 0.275% to be effective over the $25, your trade value needs to be $25/0.00275 = $9090.90. Otherwise you will be paying the minimum commission of $25. Whether you are buying $100, $500, $1000, $5000, or $9000 worth of stocks, you have to pay $25 as the 0.275% percentage commission does not apply to you. As you have probably already noticed, the lower your trade values, the more you are "losing" in terms of the commission paid.

Example Scenario

Investor A - Makes 10 trades with each trade valued at $1000 each

-> minimum commission kicks in  for each trade as each trade value is below $9090.90

-> total commission paid to for the $10000 worth of stocks = 10 x $25 = $250, which is 2.5%

Investor B - Makes 1 trade with the trade valued at $10 000

-> minimum commission does not kick in as the trade value is above $9090.90

-> total commission paid for the $10000 worth of stocks = 0.275/100 x $10000 = $27.5, which is 0.275%, seems cheaper ain't it?

The only problem is that most new investors/ investors with tighter pockets tend to end up like "investor A", resulting in a sizeable proportion of their cash being burnt before they even get started. Don't forget that the same commission applies when you want to sell hence everything in the above scenario should be "doubled" if you are not planning to buy and hold for eternity.

Also it is important to note that all brokerages are approximately the same in this sense, as they all have a minimum commission fee, which varies slightly, and a percentage fee (if the minimum commission amount were to be exceeded) which also varies slightly.

So why did i use OCBC?

Because under the YIP (youth investment program) young investors enjoy $10 off the minimum commission fee, which therefore brings the minimum commission of each trade to $15. It doesn't bring a big difference if you only made a single trade, but it will if you are making several. Also because of the slightly lower minimum commission fee under the program, it puts OCBC's minimum commission fee at a lower price than other brokerages (assuming the other brokerages are not running any special offers/promotions which can sometimes happen).

2.2. Standard Chartered Brokerage Fees

Standard Chartered currently offers a minimum commission fee of only $10, with a brokerage rate of 0.20%, hence applying the same rule, in order for the minimum brokerage fee to not apply, the value of the trade needs to be at $10/0.002 = $5000. You may be thinking now, this makes it cheaper than other brokerages doesn't it? So is there a difference? Well, I will be talking about the difference under the next point.

3. Custodian vs CDP

Basically your shares can either be held under your own CDP (Central Depository) account or a Custodian Account (which occurs in the case of SC bank, as well as in other situations but I don't think that's important to this discussion).

Various other webpages gives an entire list of the differences and disparities but here I will only be writing what I personally experienced thus far, as I believe it will be more useful as a snapshot or rather an overview of things that you will be experiencing very soon if you were to choose between the two.

Basically Standard chartered does not credit your shares to your personal CDP account, rather, they hold the shares for you, as the custodian. Whereas if you were to use OCBC or most other brokerages, the shares will be credited to your personal CDP account when you buy.

So what happens when you want to sell shares?

If a set of shares are in your own CDP account, you can use any other brokerages to trade the said shares. However, if your shares are held by SC, you can only use them to trade the same shares in question.

Any benefits to either?

Well, from my personal experience, if your shares are held in your CDP account, you will receive mailing updates directly from the company, i.e. annual reports, invitations to AGM, dividend notice, dividend reinvestment plan (DRP) notice etc. but if your shares are held under the SC custodian account, SC communicates with you on their behalf. However, you will not be invited to the AGMs, receive the companies' annual reports, although you will still receive notice when there are dividend payouts and of DRPs. Oh it is also important to note that if you were to use SC's custodian account, you would not have any voting rights, as these rights are 'transferred' to SC (the custodian), who can choose to exercise (or not exercise) the voting rights.

Any risks to using the custodian account?

Well using SC's custodian account does not seem to bring about any additional risks, as according to them, it appears that investors' shares in the SC custodian accounts are held separately from the bank's own assets. Which would mean that in the unlikely event that the bank collapses, creditors will not be able to claim ownership of your shares.

On this note, that is all from me today!

I hope you find this post useful, good luck in your own journeys.

Best Regards,
A 😁