Thursday, 7 January 2010
Remisiers’ plight: recognise that deregulation cuts both ways
A little over 10 years ago, before deregulation kicked in and when retail punters enjoyed up to a week of credit from their stockbrokers in exchange for payment of one per cent brokerage, becoming a remisier was seen as something enviable. Many were willing to consider it as a realistic career option because of the rewards it offered. Back in those halcyon days, retail participation was plentiful and came about mainly through picking up the telephone, ringing one’s remisier to discuss trading ideas, and then placing one’s orders. At one time in the market’s heyday during the mid-to-late 1990s, brokers had to install additional telephone lines, such was the demand for remisiers’ services.
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Remisiers’ plight: recognise that deregulation cuts both ways
By R SIVANITHY
05 January 2010
A little over 10 years ago, before deregulation kicked in and when retail punters enjoyed up to a week of credit from their stockbrokers in exchange for payment of one per cent brokerage, becoming a remisier was seen as something enviable. Many were willing to consider it as a realistic career option because of the rewards it offered. Back in those halcyon days, retail participation was plentiful and came about mainly through picking up the telephone, ringing one’s remisier to discuss trading ideas, and then placing one’s orders. At one time in the market’s heyday during the mid-to-late 1990s, brokers had to install additional telephone lines, such was the demand for remisiers’ services.
Today, feedback from the industry is that remisiers are struggling to make ends meet, are unable to shake the image of being simple order takers and have resorted to all sorts of devices, including trading in their own accounts, to make money (see BT, Jan 4, ‘Remisiers struggling to re-invent themselves’).
Earlier, the Singapore Exchange (SGX) recognised this to be a problem and last month announced that it is to work with the Society of Remisiers to try and help boost the profession’s image in order to attract fresh talent.
How did things get to such a sorry state? More importantly, since remisiers are still an important first line of contact between the retail public and the stock market, what can be done?
The reasons why the profession finds itself on the decline are obvious and widely known - for one, deregulation has driven commissions down to as low as 0.2 per cent (an 80 per cent drop) which, in a business where the house takes 60 per cent of commissions and the remisier 40 per cent, is a huge blow, income-wise.
Then there are the much stricter regulations contained within the Securities Industry Act of a few years ago which have severely curbed the remisiers’ ability to provide investment advice. ‘With today’s rules, open your mouth to recommend a stock and you risk getting killed,’ said one. Meanwhile the average retail punter, having had to withstand the repeated shocks of several crises such as the Asian financial collapse of 1998, the dotcom bust of 2000, the Sars/Gulf War crash of 2003 and the US sub-prime scam of 2008, has quite understandably chucked in the towel and abandoned the stock market for the seemingly safer option of punting residential property.
So what should be done? In its statement last month, SGX said it will focus on professional training. Without question, the upgrading of skills is an important component of staying relevant. However, results from training take time to become apparent and there is a pressing need to address the problem now. Our suggestion is this: it is high time that broking houses either recognise or be made to recognise that deregulation cuts both ways, and that if remisiers have had to adapt to increased risks and reduced income because commissions have become negotiable, then they in turn should also be allowed to negotiate their own income terms instead of having to passively accept the 60-40 split that currently forms the basis of their pay.
For example, why can’t a hard-working and decent-performing remisier be allowed to take 50 per cent of the commission he or she generates, or for that matter, even 60 per cent?
According to market sources, some houses have agreed to a 50-50 split but targets are set unrealistically high and payouts are restricted to once a year. So only if annual commissions generated exceed $500,000 can the remisier earn a 50 per cent cut instead of 40.
Why not allow remisiers to negotiate more flexible arrangements, such as lower targets and/or monthly incentives?
According to market sources, the 60-40 arrangement was institutionalised decades ago by a cartel formed by the local broking houses, and is today enforced by tacit agreement among these houses. Like any cartel, there is, of course, some undercutting that goes on, but by and large, fear of recriminations from other cartel members has meant that the 60-40 structure is firmly in practice for most in the profession.
If SGX and the authorities are serious about helping remisiers, they should look at dismantling this cartel and liberalising the current pay structure, moving it towards one that better reflects effort and the risks that remisiers have to live with. Whether or not this would make the profession more attractive is open to debate but it is undeniably a logical first step in addressing the problem.
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