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Brokers are still chasing business online

MORE than 30 online broking firms are currently chasing customers in Australia and, not surprisingly, the level of competition is fierce.

So where do most traders go when they select an online broker? In most cases, they simply go to the online broker owned by their bank.

This begs the question of whether investors could gain a better deal if they did more shopping around.

The close correlation between online banking and online broking emerged from market research by ACNielson.Consult.

Its research findings were supported by Westpac, which said that more than 90 per cent of Westpac Broking customers were Westpac Banking customers.

ACNielson’s research also indicates that the overall market is a lot smaller than many of the online brokers would have us believe. It estimated there were 380,000 active Internet share traders last year, with just 135,000 of these trading regularly each month. (This does not include telephone trading through online brokers, which is a significant source of business.)

While the bank-owned online brokers may have a dominant share of the market, that has not stopped new firms entering the fray.

Two prominent entrants in the past six months are Charles Schwab Australia, the local arm of the leading US online broker, and TradingRoom, a joint venture between Macquarie Bank and John Fairfax Holdings.

TradingRoom has found the market tougher than expected and has already restructured its business.

Nevertheless, it is still in the market and fuelling the vigorous competition, which is reflected in discounted trading fees and the introduction of new and better services.

ACNielson’s Mark Johnston says there is a trend for online brokers to offer a broader range of wealth management products, to attract new clients and reduce their reliance on trading fees.

The new services include the ability to invest in managed funds and superannuation funds online.

Margin lending is another product that many online brokers are now offering, along with education programs for investors.

The cost of online broking has fallen sharply, with most firms charging between $15 and $30 for Internet trades (and about $50 for telephone trades).

Shopping around for the best price is complicated by the wide array of packages on offer and the conditions that may apply.

In some cases, the best rates only apply to frequent traders.

For instance, Merrill Lynch HSBC is currently advertising a $15 flat rate. However, the fine print in its ads explains that the standard rate is $29.95 or 0.11 per cent (whichever is greater) and $15 only applies for the 8th and subsequent electronic trades within a month.

ComSec’s standard trading fee is $31.60 for trades worth up to $10,000 and 0.32 per cent for larger transactions. However, clients who open a ‘direct investment account’ with the Commonwealth Bank pay just $16.30 per trade.

Westpac Broking charges $15.95 for trades up to $15,000, $30.25 for trades worth $15,000 to $30,000, and 0.11 per cent for larger transactions.

Charles Schwab charges similar fees, depending on the amount invested and the value of individual transactions. It also allows new customers to trade for free for 30 days if they invest more than $10,000.

For frequent traders, packages like Sanford Professional or Power E*TRADE are likely to appeal. These packages have many features that traditionally were the exclusive domain of professional stockbrokers.

They include live dynamic data (eg quotes, alerts and market depth) so traders do not have to click to refresh) and sophisticated charting tools.

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