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Why EasyEquities cancelled its scrip lending launch

Investment platform admits that it ‘got it wrong’ …
Not so easy: the new clause in its Ts & Cs that covers securities lending is close to 3 000 words long. Image: Shutterstock

EasyEquities, the investment platform owned by JSE-listed Purple Group, was forced to cancel the launch of scrip lending on Thursday, the same day it announced the offering to clients. Much of the pushback was on Twitter, after certain users had highlighted potential problems with how EasyEquities had changed its terms and conditions, and how it communicated this to clients.

The introduction of scrip or securities lending, where an investor’s stock is lent out to a third party, was buried in an email to clients which referred to “minor changes to … terms and conditions” including “clarifying Sharia law compliance, [and] adding securities lending to our platform”. Neither of these changes were explained further in the email, nor in the summary document.

Much of the ‘Twitterstorm’ centred on the decision by EasyEquities to opt in all clients to scrip lending by default. Investors who did not want their securities to be lent out had to opt out in writing. There were further concerns around how clients who had opted out of marketing communication would receive notice of this change at all.

‘Tough day’

Charles Savage, CEO of the group and of the EasyEquities business, admits that the response was “overwhelming”, that the launch “didn’t go as planned” and that Thursday was a “tough day”.

For a platform that sells itself on accessibility, transparency and on democratising investing, it is not clear how EasyEquities botched this launch as badly as it did.

In a near hour-long mea culpa webinar on Friday, Savage explained that EasyEquities “saw securities lending as a way for people to automatically reduce their costs without commensurately increasing their risk”.

He highlights that not only is securities lending complex, but that this has “never been done before for mass retail”. On Thursday, in its responses, the platform made a lot about the fact that securities lending “is the reserve of the very wealthy”. Institutional investors and pension funds make use of it.

“We broke our own rules,” he admits. “We didn’t make it easy to understand.”

Philosophy forgotten

The entire philosophy of EasyEquities is to make “sure the product remains true to being easy”, and “we got that wrong”.

The new clause in its terms and conditions which covers securities lending (Clause 36) runs in excess of 2 800 words.

He adds that in the communication and implementation of the change, customers didn’t feel they had been given a choice. “We thought it was the default choice to opt everyone in.”

EasyEquities remains committed to launching scrip lending once it has “alleviated” customer concerns and made the “entire experience easier”. By default, clients will be opted out. Therefore, to ensure that customers opt-in to securities lending, EasyEquities will have to do a very good job of explaining this to its near half a million customers.

“Once we’ve presented it properly, if our customers don’t want it, we won’t launch it,” says Savage.

Only after it cancelled the rollout of scrip lending on Thursday did it disclose to its clients how much revenue would be earned from this borrowing of stock, and how it would be split.

Revenue split

In the follow-up email to clients on Thursday, it said: “All the revenue flowing from the securities lending would have been split 20% to the institutional partner [revealed to be Zarclear on the webinar], who essentially lends out the securities and manages the risk and return, 48% to EE [EasyEquities] clients for their stock and 32% to EasyEquities for managing the tech and platform on which the securities lending runs.”

“A well-diversified portfolio of listed securities would earn around 0.7% a year from securities lending income. With this in mind and the fact that we are limiting the lending to 60% of your portfolio, the total revenue from securities lending would be on average 0.42% (0.7% x 60%). Of that, clients would therefore earn an extra 0.2% (0.42% x 48%) on their portfolio per year.

“Out of interest, that’s roughly 30% of what our clients are spending on transaction fees a year. So, in essence, your costs would be reduced by 30%.

“Reducing costs is the only certain return you’ll ever get from investing and that’s why this was such a big deal for us, a way to reduce your costs by increasing your income and effectively guaranteeing a greater future return.”

Rather astonishingly, the updated terms which includes Clause 36 on automatic securities lending remains the active terms and conditions document on the Easy Equities site.

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Unnecessary risk for the security owner.

It’s only the greed for more fees by the owners and bonus-chasing top management that made them loose sight of their core values, the reason for their existence and of their most valuable asset – their clients.

True.

But if you leave EE where do you go to?

I’ve used FNB & Standard Bank webtrader ..both are exponentially more expensive.

EE is so far ahead of the digital game – yes the made a shocker mistake. But big brokers cant keep up with their model.

Anyone who understands basic math can see that FNB & Standard bank are ripping them off daily. 3% Spread & fixed costs per trade mean ea h instruction must be > R10’000 to get under 1.50% fee …RIDICULOUS costs.

I hope EE get their act together ..we need non-bank financial services. Big 4 banks are stuck in the dark ages & they still call themselves “most innovative”.

Am with EE myself (but kept portfolio small). EE is innovative in the sense that you can buy ridiculously small values of fractional shares.

Unlike what Money_Talks says about 5% pricing difference, I never experienced that high a margin difference (but there has been the odd occurrence of paying a bit more or getting less out, in their 15-minute pricing window)

But my trust in them has been wavering, especially if one sees the level of complaints on Hello Peter, etc.

What worries me more is “CaptainObvious’ discussion about doubting if EE has CSDP-accounts for each user(?) You only own the full share, and not the fractional rights….but would be interesting if full-share ownership can be verified independently (their T&C state that if EE folds, the investor is still protected by their nominee account arrangement of investors owning full shares in their name. But how that is verified, begs to question.) Same with EE’s US-trading account. Am a bit edgy….if EE fails, no-one in the US will find your nominee broker account under First World Trader(?)

And, their instructional videos of staff/teenybobbers which doesn’t look like they naturally fit into or belong at a financial institution, is concerning and the way the website’s marketing communication is written. (Yes, I accept they aim to be different to attract the smaller, less sophisticated investor….cudos to them…..but it leaves me with a childish primary-school aftertaste, wondering if EE is serious about people’s money.

Life after EE? Perhaps look at comparative website below. I’d rather trust internationally known brokers, which can be accessed from SA. Especially since the risk of SA companies folding are bigger than abroad, as SA proceeds on its long-term econ decline path, post-colonialisation.

https://brokerchooser.com/best-brokers/best-international-online-brokers-for-citizens-in-south-africa

script lending is like picking up pennies in front of a steam roller.

Their communications seem to be done by teenyboppers for teenyboppers.

Agreeing with comments that script lending is risky, and doubt if the bread and butter EE clients fully understand the complexities and risks of script-lending.

EE lost focus from main aim of “democratizing” (i.e. for everyone) share-investment & keeping this simple and accessible. That’s why you also cannot “short sell” on the EE platform, for good reason: is this type of risk palatable for the (generally) less sophisticated EE client?

Here we have a Car Workshop (lets call it “E-xceptional E-xpress” 😉 who have been providing ‘basic/routine’ car servicing, at very competitive pricing, and speedy turnaround times to a long list of happy customers the past few years. (…like mundane oil changes, filters, to perhaps the most complex job on site being wiper blades replacement 😉

Then the business owner got new aspirations, and enthustically telling all their customers that “we will soon be doing specialized repair of ECU-controlled dual-clutch and CVT gearboxes”…

Their pricing only seems very competitive if you ignore the fact that clients may not specify pricing limits for transactions. They may only specify the total amount to be invested. Afterwards clients then may discover that they have paid more than 5% above the ruling market price.

If you take this loss of value into account, EE is the most expensive broker out there.

I think the reason why clients may not specify pricing limits because they allow clients to buy part of a share. If for example a share cost R 250 you are allowed to buy only a third of a share if you cannot afford the full amount of R 250 and can only afford R 50.

At least mention the name of the person who called them out on Twitter to begin with.

No one would have known what EasyEquities was up to had they not been called out.

Unreal how the companies can assume what the client wants and change the rules of the game so ignorantly. For me, that’s a sign to leave

Yes…. time to leave.

Like when Capitec decided that they are going through all you accounts to settle the banking fees of your other accounts that have nothing to do with said account… suddenly an account you use for business is entangled with more personal accounts.

Serious question here.
Do you actually own the shares you purchase through EE? Is there a CSDP account for each user of the platform? Can you confirm that you actually own x number of shares in ABC ltd via an independent source?

If there isn’t a CSDP account, the individual doesn’t actually own the shares. Making this script lending argument a waste of time.

Sure under script lending there is counter-party credit risk on the part of the borrower of the shares, but without a CSDP account there is counter-party risk on behalf of EE. (Not sure if I would want to “lend” my portfolio of assets to “EE” or “trust” that they actually have the shares behind my purchases.)

If I recall in 2015 they “suspended” trading on certain stocks to “protect” customers from volatility. Me thinks this was actually done because they weren’t able to hedge out the risk of the trades going through the platform – so they just shut down the trading.

I have never been a fan of EE. There is a reason fees are as high as they are through other brokerages – if you pay less in fees, best you believe a corner is being cut somewhere.

Well, I think that for starters all investors must by default be opted out of this scheme and only investors who opt in in writing, must be part of the scheme. Never thought that my investment platform will just decide on my behalf. What if I did not even read the notice because of some internet problem in my area. Maybe it is time to leave.

very bad customers service

Could not agree more! Is the first warning sign!

End of comments.

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