Standard Chartered Online Trading 2016: ‘No $200K, Pay $10/Trade’
Thursday, 15 June 2016I
You probably have heard it.
SCB announced their upcoming $10 minimum commission starting from 1st August 2016 onward. There are no changes to its brokerage rate and custody fee.
Standard Chartered Online Trading 1 Aug 2016: Brokerage Fee 0.20% remains the same but now with $10 Min. Com. unless you are a Priority Banking Clients
For the priority banking customer you are excluded from the charges of min. com. The minimum qualifying amount for priority banking is an AUM of $250,000 with SCB.
(STI ETF Single Lot Investors: Feeling screwed up by SCB? I have solutions for you, click here to jump straight in)
How SCB Min. Com. Started
For those who don't know, in 2011 SCB launched its only town ZERO min com online trading platform. This was a time where the rest its competitors was charging a minimum commission of $25.
As a small investor, it was a huge cost saving. For instance a trade amount of $1,000, without the min com you only pay $2.00 (0.2%) whereas other brokerage house like CIMB security would charge you a minimum brokerage fee of $25.00. Even though the brokerage fee is only $2.75 (0.275%).
The optimum trade size for the average brokerage house is $9,000. It means if you were to trade $9,000 per trade, your expenses wastage is zero (min fee/brokerage fee). For most retail investors chances are your trade amount is below that, hence, SCB was the only option to avoid paying excess brokerage fee.
Single Lot STI ETF DCA Investors
This also created the opportunity for the single lot size($290) STI ETF DCA investors to minimize their investment cost through SCB. It was unmatchable even for the cheapest share builder plan providers such as POSB invest-saver 1% sales charge. Hence, investors who had the discipline were encouraged to invest via SCB platform.
Now with this upcoming revision, our investment expense will not be as low as before. Mainly there are three group of investors: investor who trades more than $5k per trade, below $5k and the DCA STI ETF investors.
I will cover them one at a time and how does it affect them.
Ever since I started investing, all my trades were executed via SCB, so this revision is going to eat into my investment returns. Before that, a $1,000 trade amount would cost me only $2 representing 0.2% of expense ratio. After the change, my fee will increase to $10 (1%).
This is 5x of what I'm paying before!
It gets worst if I rebalance my portfolio (doing it this month), as it requires little amount of stocks to be bought or sold making the value of each counter to be equal-weighted.
But nonetheless let's not neglect the fact that 1% trading expenses is still considered low.
SCB optimum trade size: $10 min. com and 0.2% brokerage fee
The optimum trade size for $10 minimum commission is $5,000 (min. Com./brokerage %). Trading amount below $5,000 per trade would result in wastage of commission.
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I have listed the various brokerage houses in Singapore, as you can see SCB is still the cheapest option for small retail investors whose trade amount is less than $5,000.
Not only that SCB has also one of the lowest trading fee % for transaction below $50,000, with some exception on those ‘cash upfront’ accounts. Worth noting that nearly all brokerage houses optimum trade size is around $9,000 - $10,000.
Interesting finding: all their promotion ends at June 2016.
Actually, there is one brokerage house that offers zero minimum commission. DBS vickers, but that is a catch: you need to qualify for their DBS treasury which its minimum qualifying sum is an AUM of $350,000:)
Existing SCB Investors: How Does Minimum Commission Affects you?
For investors who trade size is more than $5,000 per trade. Everything remains the same for you as your commission is either $10 if not more.
However, for investors like myself who trade size is less than $5,000. Your cost of investment will increase drastically depending on the amount per trade. The lower your trade size is, the higher your expense ratio will be as you now have to pay at least $10 fee per trade.
What Investors Hate About SCB
Now let's get into the flip side of SCB and some of the concerns you may have.
I will start off with the fun one first:
‘SCB is closing down!’ Some forumers commented SCB is about to close down soon, and investors will lose all their investment and money. Reasoning on their recent retrenchment and poor business performance. And the charging of minimum fee of $10 is a sign of financial distress.
I feel bad for the investors who got scared by their remarks and moving around like a headless chicken. Before I continue, one needs to know the community has many anti-SCB investors. As one of the fourmer pointed out, whatever the government or incumbent does something they don't like. They would pour on scorn and make the worst possible remarks you can ever imagine.
Please don't let them get into your head. First of all, they are making two BIG assumptions. First, SCB is going to bankrupt, which is not. And second, if it goes bust SCB will not return your investment and money back, and you will lose everything.
If SCB evil plan is to run away with your money and investment then why the heck do they want to charge you a minimum fee, isn't it better to stay as is than to do things that would trigger your withdrawal or transfer?
They may not be smart enough to run the bank well but I don't think they are dumb enough not to realize that.
How I see SCB is simple:
SCB is closing down = maybe
Bankrupt + run away with your investment/money = unlikely.
Bankrupt + run away with your investment/money + without government intervention = Not even remotely close.
Wide FX spread - it has mentioned by some bloggers, SCB has a wide FX spread. From what I gathered, the spread for USD is roughly 1.5% and 2% for the remaining currencies. Of note that costly spread cost you when you convert the currency to and from as you exit.
Custodian account - for other brokerage house, your purchased shares are stored in a CDP account. However, for SCB your shares are stored in a nomintee account. Many consider this as risky. What many do not realize is CDP is a local practice rather than a standard global practice. Hence, a better way to think about custodian vs CDP issue is not to ask whether is SCB riskier.
That's a wrong question. The right question is: is CDP safer than SCB custodian?
And the answer is: yes and it is yes because CDP is backed by SGX and indirectly by government.
Inadequate service and ugly IU. This does not affect me, all I need is to transact stocks.
Potential custody fee. There is a possibility that SCB would impose a custody fee in future. No one knows when and how much. But what we do know is should it happens we can always transfer our SCB custodian shares to CDP at the cost of $10 per counter.
How To Transfer SCB Shares To CDP
I created this section as I see many people ask about to how to transfer shares out of SCB to CDP. The below is what I gathered:
Make you you have a CDP account
Visit any SCB branch
Tell the personel you want to transfer your SCB’s stocks to CDP
- Competition time is about 2-6 weeks
Transfer cost $10.70 per counter (it used to be per lot).
3 Solutions For The Single Lot STI ETF Investors Who Using Dollar Cost Averaging
Feeling screwed up by SCB?
Likely you are, but don't worry. I have three solutions for you.
But before I jump right in, here is what happened now.
Until 1 Aug 2016, your commission cost for a single lot of STI ETF ($290) would only cost you 0.02% ($). But now, with the of $10 min com your expenses ratio become 3.5%, and that is a jump of xyz!
So continuing with SCB for your monthly DCA is not a variable option anymore, as the cost is wayyyy too high.
Here is the three solutions:
Solution #1: Increase your deposit/investment to $200,000(info). By becoming their priority banking customer you are excluded for the minimum commission.
Solution #2: Instead of doing monthly DCA. Change it to quarterly instead, make it to $1,000 investment per quarter. This will reduce your expenses ratio to 1% ($10/$1k).
Solution #3: Switch over to POSB Invest Saver, you can either remain your existing shares in SCB or transfer it to your CDP(if you are not comfortable). The sales charge is 1%, same as solution #2. But if you factoring in selling cost, POSB is actually cheaper because there is no redemption cost.
I would still continue to use SCB as my primary trading platform. The cost is higher no doubt but it is still the cheapest option out on the market.
Should the event of unreasonable charges arise, I can always transfer my share to CDP.
Depending on your trade size, for me the cost saving even after factoring the $10.70 transfer fee of each counter would still be cheaper than the minimum commission of $25.00 charged by other brokerage house.
Hit reply and let me know what you think.