Thursday, June 2, 2016

SCB Min Comm is Coming. How Now?

Unfortunately, I haven't been reading my mail lately these days. I have a pretty stack of maybe 20 letters in the corner that has been piling up, waiting for me to rip them open, process them, then file them away. I'm kind of old school and I like keeping a hardcopy of my financial records. I'm a tad annoyed by e-statements, but I think I will be throwing the hat in soon and start keeping digital records once I get a network attached storage (NAS). I'm hoping to buy one this coming PC Show. I am eyeing a Western Digital My Cloud, if anyone was interested (probably not).

I was kind of surprised when a reader alerted me about the new SCB changes in my latest post about my SGX portfolio. Ripped open my mail and I found the letter. I went to search more and I found the recent post by Derek, as well as reading through the HWZ forums

Basically, the only change is that for regular banking customers, there is a $10 minimum trading fee. Before, there was nothing.

Looking at my SGX portfolio since I started, I've made 111 transaction, with an average trade value of $281.32 and my average trading commission was $0.70. On a normal brokerage, that's $2000 worth of transactions. I've paid about $79. (Of course if I was with a normal brokerage, I wouldn't make half my trades though!) And the math checks out to be about 0.25%, which is esentially the 0.20% that SCB charges, and the 0.0428% that is tagged along from clearing fees, SGX access fees, and of course, GST. Never forget these fees.

The smallest trade I made was $31 and they charged me $0.07.
The biggest trade I made was $1560 and they charged me $3.89.

As you can tell, this change in the minimum trading fee really affects me A LOT.

However, I have always been a ardent supporter of low-cost solutions. There are some people who require zero market research or analyst publications and don't use the brokerages fancy charts and tools. For people like this (people like me), having a low-cost solution to just do simple transactions is exactly what we need. The SCB platform is ugly as shit, but even if it was prettier or sleeker, it wouldn't make a difference to me. However, I do kind of feel like I'm getting screwed over a bit by paying $10 when full brokerages pay $18 and is at least a 5/10 in terms of their platform looks and functions. SCB right now is a 3/10. I might shag it to repopulate the world, but it is purely out of necessity rather than want. If the amount was $2 or $5, it would be much easier to stomach considering their shitty platform. Seriously. Their platform is horrible. Looks like it was written 10 years ago.

Perhaps if there weren't so damn stupid to send me paper statements of every goddamn transaction, they could save on a TON of costs. Why not force e-statements on trades lower than a certain value, or just en masse force everyone on the platform to only receive e-statements? But what do I know about running a bank? I'm just a retail schmuck. Anyway what's done is done, no amount of people whining on blogs or forums is going to make them take back their decision by 1st Aug.

I was kind of sad when I (falsely) thought that SCB was going to shut down in Singapore. Although it does have some shortcomings, their fees were really very attractive for that small risk of custodian vs CDP. Personally, I quite enjoy their system and style of handling rights (perhaps the only complaint is that the time window is a bit tight), as well as how they handle your dividends. There are no fees involved in these extra corporate actions.

Now, the very important question is: What should I do now?

Should I move brokerage? What should I do with my small lots? And how small is small? 

Anyway in such a situation, what does one do? Well, firstly, I need to evaluate my options.

Yes, I realized I forgot Maybank. But you get the point.

I have only looked at "Cash" settlement because that is how I buy and sell my stocks. I don't contra trade and I am not really in a rush to make trades. I also like to think of it as a self-imposed cooling off period for me to think about what I want to do next before making any rash decisions.

As you can see, even after the change in fee structure, SCB is still the cheapest broker and require the lowest amount of trading size to minimize trading costs, by far. Once the Phillip $10 promotion expires, you basically need to come out with a $10k investment per trade to minimize your trading costs. This is.... huge. 

The main gripe that most people has is that SCB is a custodian, while the other brokers use CDP.

From my understanding and usage with SCB, I have only ever paid the trading commission fees. There has been no other fees charged to me, such as inactivity fees, custodian fees, rights issue fees, dividends crediting fees. However, it is important to note that amongst brokers, most of these fees are waived for SGX stocks, but are usually not waived for foreign stocks.

With the other brokerages, I am honestly not sure about the fee structure for anything other than the basic buy/sell actions. The upsides are that you have not bound to a single broker (CDP managed) and that you get to attend AGMs, eat free food, vote and ask irritating questions during the meetings if you want.

For me the answer becomes clearer the more I investigate and find out information. SCB is still the cheapest brokerage and requires the lowest trading amount to minimize trading cost. Although their platform is ugly as shit, they do know what their competitors are offering and have strategically repositioned themselves to a rather good point. Even if I don't make a $5000 trade, making a $1000 trade costs just 1%, whereas a $1000 trade with the other brokers (without promotions) will set me back 1.8%. 1% is still very palatable, considering that is the amount of fees that RSP plans usually take (Maybank, POSB). 

It's ironic, but I don't want to attend AGMs (as if I'm so free to take leave for that) and collect annual reports. I would rather have a nice arms length distance to my investments so that I don't feel too emotionally attached or biased. The free AGM buffets is a plus, but not when I'm in my 20s. If I was retiring / very free, I would definitely make sure to attend all AGMs, haha! Perhaps in the future, I will transfer the minimum amount out of SCB's custody and into a CDP account so that I can go attend AGMs.

So, next question is: how small is small? I would say that even a $500 trade on SCB with a $10 fee is still palatable to me. That is a 2% cost. If you worry about my 2% cost, think about all those aunties and uncles that get suckered at banks every other day to buy unit trusts at 3-5% sale charges, followed by an on-going 1.5% management fee. Don't feel sad for me. Sure, it isn't small, but it does still give me an affordable option to make an investment without OVER investing. I wonder how many people throw in a few extra thousand per trade and increase their capital at risk to save a few dollars on trading costs. I don't mind paying a higher commission if it means that I can comfortably control my level of market participation. 

Now, what will I do will all my tiny investments? I have checked, and 73% of my portfolio are in counters that are worth more than $500. In that case, I don't see the need to quickly evaluate them. However, this 70% is made up of just 12 stocks.

That means I have 42 stocks that make up 30% of my portfolio! Over the coming weeks, I will be reviewing these stocks. I would say that in most cases, I would be making purchases to beef up their value and push it over the $500 value, which is my personal mental barrier. For other cases, I would be selling them, either because I don't want to have a $500 position in them, or I have decided to cut my losses / take my profits on such counters.

Personally, I am really hoping for cheap investing solutions in our financial industry. Phillip does a great job with their unit trusts. SCB was the star example for equities until this change. If the minimum fee was $5, I'm sure SCB customers would moan and groan a bit, but few would jump ship. From the feelings I am getting reading through the forums, most people will be moving to CDP brokers and basically just trade with whichever broker is offering the best trading promotion. Honestly, it's not too bad of an idea, especially if having your holdings in CDP helps you sleep better at night.

For me, this means I have a tiring 2 months ahead of me trying to sell off or buy in and beef up my small positions before the final change in SCB's trading fees. I will continue using the SCB platform. Granted, it isn't dirt cheap anymore, but it is still cheaper than the rest and its platform's inadequate offerings strangely is enough to suit my low-ball needs.

I have 1 Hail Mary left, which is getting someone I know with a priority banking account to "vouch" for me and also have my account be considered "priority banking" even though the balance is no where near that $200,000 mark. I honestly don't know how these sort of things work, but I was told by him that he has done it before. I don't have much hopes for it, but who knows, right? 


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  2. There's also the chance that 8 Securities might launch their commission-free trading platform here later this year:

    1. Hi J,

      Yeah, fingers crossed for that! Our fintech is a bit laggy here, haha

  3. I'll be looking to beef up some of my stocks, but some, like iReit, are abit too overvalued for my liking, I'll most likely sell them. That said however, I'm still ok with the min fee, just wondering if they'll ever start charging custodian fees and whether if it'll be too late to jump ship by then.

    1. Hi unluckid,

      In the event that they do start charging fees, I think plenty of people will abandon the platform. On the bright side, with 1000 shares, you can transfer out holdings to CDP at $10.70 if I'm not wrong. So there is still an exit strategy, though it is not ideal.

  4. hi, just wondering how do you able to use the "priority banking" relationship to enjoy no minimum commission... able to vouch for me too?

    1. Lol I would do that for you if I could Anon, but I don't even naturally qualify myself!

  5. This is really an awesome article. Thank you for sharing this.It is worth reading for everyone.

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