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Stockbroker admin fees under scrutiny

Why are clients being charged high rates for money managed by JSE Trustees?

Stockbrokers in South Africa are charging fees as high as 1% on money they don’t even manage. These charges are levied on cash held by JSE Trustees, and billed for administration and charges related to the broker deal accounting (BDA) system that keeps records for the brokers.

While 1% might not sound like much, it is close to double what any investor would pay for administration on local unit trust platforms. It is also five times what JSE Trustees itself charges for the actual management of the money.

JSE Trustees is a separate company formed by the JSE to invest the surplus cash held by brokers belonging to their clients. It essentially runs a money market fund so that this cash is always immediately available, either to trade or to be withdrawn.

The management fee charged by the company is currently 0.2%.

What clients are paying

Moneyweb surveyed a number of local brokers to assess what fee they are charging for money held in this account by JSE Trustees. Of those that responded, all but one is charging their clients 1%.

This is an eye-watering administration fee at a time when pressure on costs across the investment industry has been severe. A recent survey of investment platforms in South Africa by The Collaborative Exchange shows that the highest administration fee charged by any platform is 0.58%, including value-added tax. Some have maximum fees of 0.48%.

Most unit trust platforms charge administration fees on a sliding scale, meaning that the more money you have invested, the lower the charge. The table below illustrates how this works at two of the country’s largest platforms, Allan Gray and Stanlib.

Administration fees on unit trust platforms
Allan Gray Stanlib
First R1.5 million 0.5% Accounts up to R2 million 0.48%
Next R3.5 million 0.2% Accounts up to R4 million 0.2%
Balance above R5 million 0.1% Accounts above R4 million 0.1%

Source: Allan Gray and Stanlib

What value are clients getting?

When asked by Moneyweb to justify their much higher fee, the most frequent response from stockbrokers was that it is “in line” with what is levied by their competitors.

In other words, it is not a reflection of what it actually costs them to administer this money, but only of what a clearly inefficient market allows them to charge their clients for doing so.

While there is no question that there is work involved in this administration, it should be no more onerous than that required of those providing administration for funds on unit trust platforms.

Yet brokers are charging twice as much for this service.

What also makes it obvious that this fee is unnecessarily high is that not everyone charges this rate. Sanlam Private Wealth charges its clients only 0.5%. In other words, they are able to do the same job at half the price. Institutional clients who are aware of this fee have also been able to negotiate far lower administration costs with their brokers.

Of course institutional clients trade in much larger volumes, so there is more of an incentive for brokers to offer them better rates to attract business. However, the actual administration of their money with JSE Trustees is no less burdensome than it would be for any individual client.

Out of line

It is worth noting that it is not an enormous amount of money that is affected by these fees. Most client funds are actually invested in the stock market rather than sitting with JSE Trustees.

At the end of 2018, the exchange reported that JSE Trustees had just over R36 billion in funds under management. The previous year, this figure was R43 billion.

In the context of the overall investment industry, these are small figures. However, taking 1% off the actual return on these funds is meaningful for those whose money it is.

JSE Trustees is currently paying interest of around 7%, after deducting its own management fee.

Charging clients 1% for administration means brokers are taking 14% of that interest.

While all the brokers Moneyweb surveyed noted that they are transparent about these fees, this is nevertheless a demanding rate at which to charge clients. It may be in line with what other brokers charge, but it certainly isn’t in line with what is charged in other parts of the industry.

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ABSA Stockbrokers Online Trading Platform – here is an actual example of mine- and everytime I query they ignore me. R324,33 Interest for month of August 2019. Broker Trustee Fee it is called R41,39 plus VAT 6,21. So before VAT 12,76% = 14,67% after VAT added.

Do they also declare the gross amount on your tax certificate?

Yes they do.

Yes but you can net it off against interest received.

The irony is that Standard Bank Brokers do not charge these fees for hubby’s.

Ignoring investors’ queries is the standard response. Beats trying to explain away the indefensible.

Dear Patrick, is this best time spent writing an article about fees on R40m while for example some of the so called low cost investment product houses that does not fall under the unit trust disclosure requirements overcharges clients on billions of investments?

Apologies for a typo in the article – it is billions not millions. But, regardless, it doesn’t really matter how much money is involved overall, because it is significant for whoever’s money it is.

If you have information of anyone overcharging for anything, please send me what you know. Thanks.

Hi Patrick,

If you want to hear about extortion fees. Here is a story:

I have a disabled (mentally and physically) brother that requires 24 hour care, my mom passed away (cancer 10 years ago) and left her pension fund to care for my brother. The company that did the will for my mom was PSG. In the will they required the setup of a trust to care for my brother, and they appointed themselves to be trustee. This all sounds very noble. The will makes no mention of the fees that will be charged.

The pension fund was worth about R1.1M and has been depleted in 10 years. The monthly fee trustee fee charged is R1150 p/m and they simply ignore all correspondence around this fee. A rough calculation shows that they have helped themselves to a fee of roughly R140K over those 10 years. For their effort they have to schedule a monthly payment, and submit a return to SARS once a year. The amount that they have awarded themselves would have been enough to care for another year. I think that people need to be aware what the fees involved when simply trusting a company to setup a will free of charge. People need to think carefully before assigning a trustee to a trust and an executor to a will, as these come with rather large fees that are completely hidden to the everyday man on the street.

Very valid point but I am not to sure what to do about it. I have been with my broker for over 20 years.

Maybe their inability to do something about it will in the end be more important than loyalty?

There are so many other options these day’s and maybe it is time to really start looking around.

Easy Equities are the worst offenders

hello Quidditas. I just started using Easy Equities.
May you please elaborate on the point above?

PSG Stock Brokers charge an average of 16% including vat.
What makes it worse is that on your tax certificate they declare the gross amount.
If your marginal tax rate is 40% (easy example) you end up in your pocket with only R50,40 of every Rand interest earned.
(R100 – 16% = R84 and 60% of R84 = R50.40)

DAYLIGHT ROBBERY

Great article Patrick!! Keep up the good work an all the “dodgy” practices of unit trust companies and brokerage’s – All smoke and mirrors.

Please elaborate on ‘dodgy’ practices by unit trust companies? It cannot be fee because a recent international report by Morningstar showed unit trust investment charges to be average across a range of countries.

Im more interested in reducing the fees on trades and monthly fees. My broker charges 0.75% per trade half of which goes to jse and taxes. So gets pricey on R100k per trade. Compare that to my US broker that charges $7 per trade.
Easy equities not a true discount broker in terms of market limits and liquidity, would like to see some pricing competition from local brokerages.

Negotiate with your broker, I did. PSG dropped the brokerage fee to 0.5% after I threatened to take my brokerage account elsewhere.

That’s still high – one of the problems is the STT of 0.25% per purchase. I also suspect the JSE charges a sliding scale for trades, so perhaps the alternative exchanges will assist there.

No, the days of a fixed fee capped at R100 per trade are not here yet. Even if my broker were free, the taxes alone would cost me R500 for a R200k trade, versus R100 (perhaps less) offshore. Scale really matters…

Actually scrap my previous reply. Charles Schwab is the 2nd US broker that announced that from today trading fees are now 0.

Exactly why I transfer funds after sales, to FNB.s money management account. They pay 7.1% with funds available immediately on request. Even capitec pays something like 5.5% on their transactional/savings acc. PSG has a cash balance of only R300 max on my acc. But they still make you wait 6 days for your money to become available.

As an ex PSG client I was amazed at seeing how much lower fees are internationally. I remember paying 0.75% in commissions, a R40/month account fee as well as trustees fees.

Now living in Australia my brokerage is around 0.15% on amounts below $15K and 0.11% on amounts over $15K. No other fees. My SA fees were almost 7x more than in Australia.

Perhaps what SA needs is for some new player to shake things up with a lower cost option. It seems like the brokerage houses are ripping off customers and one must think that they are making very healthy margins at this stage.

US brokers are by far the best.. Ameritrade $6.95, eTrade $6.95, Fidelity $4.95, Interactive Brokers potentially $1. Percentage based commission can be a problem.

You are lucky. PSG wealth charge me 0.9% brokerage on an ordinary account and 1.4% on a share based living annuity. In addition there is a 0.94% fee on the LA account even though I manage the shares in the account myself.

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