Money manager assesses impact of digital services as price war continues to rage
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Investors have been warned that using a free trading app won’t automatically make you a good trader.
Hot on the heels of Wealthsimple Trade’s unveiling, industry heavyweight JP Morgan Chase announced yesterday that its new digital investing service will go live next week, featuring a host of free or discounted trades, a portfolio building tool and no-fee access to the bank’s stock research. Anyone who downloads JP Morgan’s mobile banking app or uses its websites can get at least 100 free trades in the first year.
Chris Ambridge, president and chief investment officer at Provisus Wealth Management, said that JP Morgan’s app is a defensive move after seeing retail clients head to discount brokerages. He added that it's also an acknowledgement of the “microscopic” cost of execution.
He said: “You start to look at what your average retail client’s trading volume might be and, as a business, your execution costs are less than a dollar, or something ridiculous for small trades. And then you realise than I’m not winning any business in this space, so how do I make a splash? By saying the word ‘free’.”
Cross-selling, bid-ask spreads, FX and securities lending offers the chance for these companies to make money, so a “free” product can benefit both parties. For advisors, Ambridge said that the value of being a good stock-picker will not be diminished, with many investors set to discover just how hard it actually is.
He said: “Stock picking is always valuable – just because you can trade for free doesn’t mean you can get good value.
“The problem with most investors who trade themselves is they are their own worst enemy; some trade like the wind and some don’t trade at all. They still have to pick stocks and control risk.
“If you look at the day traders as an example, they trade like the wind and most of them end up going bankrupt. Just because you can trade for free, doesn’t mean you can do good things.”
Ambridge said that, ultimately, it comes down to value. If a product or an advisor delivers the goods, then someone will always be willing to pay. He stressed that the cost of the product versus the cost of the service are two separate things.
“The advisor may be inclined to take a lower-cost vehicle but they are still charging their 1% execution or fee-based account because they are providing a service. It gets to a point, though, whether you are being charged 0 or 10 basis points, that the client really doesn’t care. You still have to have the results and the service.
“There are people out there who pay very high prices for very good mutual funds or hedge funds or private equity – those fees aren’t coming down. If there’s value there, people will pay up.”
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