Knowingly or unknowingly, in the lopsided focus on the cost, one should not end up discounting this premium.
By Anshul Arzare
From the bygone era of boisterous ring trades and high-priced market intermediation to an epoch-making transformation in terms of tech-enabled, cost-effective, and democratic operations, the brokerage has truly come of age. While account opening and fund transfers for trading have become seamless in the online era, a plethora of AI-powered apps and tools are ready to help with prudent investing and trading based on stated goals and aspirations. Given the better choice and control at the hands of demand-side stakeholders, many discount broking players have emerged on the scene in what is a crowded marketplace, a market focused on price, not service.
Notwithstanding all its pros, discount broking is largely a volume-driven game as the brokerage mission, more often than not, is unduly centred on the commission. Broking is today held synonymous with click-of-a-button trade executions at the lowest cost of ownership. But does the ease and convenience of the self-service model translate into more wealth creation and maximization? Not necessarily. Broking, after all, is not just about its underlying transactions; it is more than the sum of its parts. A good broker is a partner in progress, not a mere concierge for trade execution and settlement.
Choosing a broker, a task rooted in prudence and diligence, calls for a deeper acknowledgement of the ultimate objective of capital market transactions: fulfilment of short-term and long-term goals, and creation of substantial wealth to help meet post-retirement expenses. The broker who ensures round the clock service (which is not synonymous with full service) provides a distinct value-add of two components – attention and acumen. The choice of a broker demands a scrupulous assessment of both these components:
Quality of Attention
- Ease, convenience, and cost-effectiveness of broking operations are critical attributes no doubt, but they are more or less given in this era of tech-powered business. Robust trading platforms definitely enrich the measurable value of the relationship, but the quality of the broking relationship hinges on the guidance provided by brokers which in turn builds the irreplaceable value called trust. The broking firm’s digital footprint should aim at building a non-intrusive intimacy with the customer apart from an enhanced user experience.
- The broker’s customer service – including the back-end resolution of queries and complaints – should be fast, efficient, proactive, transparent, and solution centric. The designated representative should be easily accessible at all times, and crucial updates must be proactively posted on channels of the customer’s choice, making the most of technology in this crucial area.
- Broking firms have a fiduciary responsibility towards serving the larger cause of their customers. A good broker proactively educates the customer about the common myths and unreasonable expectations that often beat logic and reason and promptly advises caution and prudence wherever required.
Quality of Acumen
- Research is the backbone of a good broking house. The best are invariably distinguished from the rest by the frequency, diversity, and depth of their research communique, which go way beyond the customary industry & corporate reports or daily market updates. They include analytical takes on markets, economy, and industry; insightful summaries of global and domestic market happenings; key stock ideas based on diverse themes; and insightful conversations with industry leaders and market mavericks on topical issues.
- Financial literacy should be an integral part of the broker’s service spectrum. Prudent stock selection is more elusive than what the term signifies. It is about putting equity and debt in proper perspective, linking both to the needs of each customer before exploiting the intrinsic virtues of both asset classes in a judicious blend.
- Before recommending picks, the stockbroker must study the customer’s life goals – whether short-term, mid-term and long-term – as also approaching milestones like higher education, employment, entrepreneurship, wedlock, childbirth etc. A pick will not tick unless it is tailored to meet the exact objective of achieving short-term or long-term goals of defined timeframes and commensurate risk appetites.
- Cutting-edge technology becomes a key enabler provided it is used judiciously, not merely acquired. For instance, for big data analytics to bear fruit, firms must have a good blend of domain and tech expertise to be able to analyze the volume, velocity, variety, veracity, and value of data, and identify organic revenue opportunities for their customers.
The advisory value of a good broker is inherently holistic. It helps the client with disciplined and diversified purchases in line with income profiles and risk appetites, making the most of tax incentives and market opportunities. It unfolds the intricacies that usually baffle the small investor, like for instance the pros and cons of load vs no-load mutual funds, and lump sum and SIP investments. It stresses on the monumental role of a safety margin in nurturing a portfolio. Good advice is also about making the customer aware of the perils of excessive caution and greed, about how the term ‘multibagger’ is often reduced to a misnomer, thanks to the handiwork of vested interests. It helps the customer make sense of market cycles, including sharp upswings and falls, and the underlying logic (or the lack of it). It helps spot sunrise players with undeniable value props, as also explicates when and why staggered purchases or buying in downward trajectories can make sense. It explains how a changing landscape can quickly turn laggards into promising bets and high-fliers into also-rans. It demystifies the union budget to ensure better and actionable comprehension of the likely effect of draconian and sanguine measures.
In this era of mounting complexity, perpetual uncertainty, and near-fatal disruptions like Covid-19, investors need to be extra vigilant about their broking relationships, else market-enforced prudence will force them to re-examine the measurable value of ‘low-cost’ and ‘high-volume’ claims in hindsight. The quality of attention and acumen are the building blocks of a broker’s value proposition. Knowingly or unknowingly, in the lopsided focus on the cost, one should not end up discounting this premium.
(Anshul Arzare is the Business Head – Investment Advisory & Wealth Broking for YES SECURITIES. The views expressed are the author’s own.)