Thursday 7 January 2010

Remisiers struggling to reinvent themselves

Many going into business for themselves, forced by thinner commission rates, increase in direct trading

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Guanyu said...

Remisiers struggling to reinvent themselves

Many going into business for themselves, forced by thinner commission rates, increase in direct trading

By JOYCE HOOI
04 January 2010

Remisiers, like foot soldiers, may get plenty of bounty. But they get little respect.

Now, in the era of the three-star generals like the investment banker and the hedge-fund manager, remisiers get less bounty and even less respect, long-entrenched in the public’s mind as order takers who live off ever-shrinking crumbs of commissions.

What is a foot soldier to do in such trying times? Turn mercenary, of course.

Remisier Zach Chua has begun trading more derivatives on his own after attending an advanced four-day course conducted by the Singapore Exchange (SGX) in late-2009.

‘It was quite an eye-opener for me,’ he says. ‘I mostly trade for myself, because I have better control over my risk exposure. Clients sometimes do not know enough about risk management.’

Mr. Chua is one of many remisiers who have begun to go into business for themselves, as commission rates continue to be sliced thin and clients become increasingly irrational.

‘A growing pool of remisiers don’t have clients but trade for themselves as proprietary traders, so we want to groom them as prop traders, too,’ says Andrew Ler, senior vice-president and head, private investors, at SGX.

It hadn’t always been like this. Most remisiers today would be keen to regale anyone willing to listen with tales of the profession’s heyday in the early 1990s.

Almost two decades ago, remisiers were the fund managers of their time - widely envied if reviled, rolling in fat commissions and turning away clients begging for a piece of market action.

Back in bullish 1993, it was once said that even the most middling remisier could earn $30,000 a month. In 1994, Singapore’s top earner was a remisier who took home a $10.2 million slab of bacon.

By March last year, the average take-home pay was $2,000 a month for remisiers. Bearish as the market had been, entry-level local private bankers were being offered anywhere from $2,500 to $2,700 at the same time.

Most in the profession finger the industry’s liberalisation in October 2000 as the turning point when the trenches began to fill with blood.

Brokerage house J M Sassoon fired the first salvo then, undercutting its own remisiers by charging customers 33 per cent less commission if they switched from remisier-assisted online stock trading to direct online trading.

Just as quickly as remisiers stampeded into the market during the boom period, remisiers fled. In the first eight months of 2001, the profession shrank by 5.5 per cent, to about 3,000 remisiers.

Today, with plenty of fluctuations in between, the remisier population stands at 2,750 - a 3.4 per cent annualised increase since 2004.

‘Before 2000, the commission was at 0.75 per cent. Now broker-assisted trades have been reduced to 0.5 per cent. Internet rates are at 0.4 per cent, or 0.5 per cent for amounts above $50,000. It’s a drastic drop,’ says Albert Fong, president of the Society of Remisiers.

And all this before the brokerage house takes its 60 per cent cut from the commission. While the slashing of commission rates exacerbated the souring of the remisier dream, the reality is that remisiers have traditionally been given the short end of a rather pointy stick.

The high-rollers of the early 1990s were aberrations. By and large, remisiers have lived and died by the sword, their fortunes buffeted violently by the vagaries of the market and their clients’ solvency.

‘The client seldom pays money upfront. We underwrite the credit risk. If the stock is force-sold at a loss, interest charges will kick in,’ says Mr. Fong.

When the market dropped 10 per cent in September 2008, remisiers were caught in a terrifying and senseless risk-reward ratio - an exposure of $10,000 in exchange for a $120 commission, for example.

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The numbers appear to be the easy part, too. The people are something else altogether. ‘Clients. Always buy, buy, buy. They don’t know how to sell. Some of them can also be quite nasty,’ says a remisier with more than a decade of experience.

Despite the incredibly complex tasks that remisiers have to instinctively juggle, Mr. Fong reckons they are still seen as toll collectors, something that he has been saying since 2004. ‘It has been very misunderstood for many years. I’ve been told by higher authorities that we are just toll collectors. We were quite offended,’ he says.

SGX’s Mr. Ler thinks this may be the unfortunate reality in some cases. ‘Some remisiers have not adapted well after liberalisation. They are playing the role of order taker,’ he says.

The customer base for the order taker is already eroding or simply paying less, and the writing appears to be on the wall for remisiers who rely on commissions and simple equity trades.

‘Seventy per cent of my clients are in the 50-60s age group and they are able to do Internet trading these days,’ remisier Eric Chan observes.

The remisiers themselves are not getting any younger, with their average age edging well into the 40s. There is still hope, however. Mr. Chua, of the derivative trading enthusiasm, is only 31 this year, having made a career switch from being an airforce regular just over a year ago.

SGX hopes to see 1,000 additional remisiers like Mr. Chua by 2012, with the launch of its Remaking of the Remisier Profession campaign in November last year.

By 2012, with a little luck, the only profession in need of an image makeover will be that of investment banking.