I wrote this article in 2012 for eFinancial.com. Interestingly, it is still there. In case it will be taken down in future, I have decided to repost it here on my financial blog for your reading pleasure. I have attached the link here as well: https://www.efinancialcareers.sg/news/2012/09/guest-comment-think-asian-stockbrokers-make-tons-of-money-heres-a-reality-check
by The Stockbroker 26 September 2012
I sat at my desk today and reflected on an eventful past decade: There was the dot-com bubble bursting in 2000, SARS in 2003, the US subprime crisis in 2007, and the ongoing euro zone debt crisis, which began in 2009. All these events have seen billions of dollars erased in terms of market capitalisation.
I have seen both the ups and downs of the industry as a stockbroker, from mass recruitment in 2006 to mass retrenchment in 2008. However, most people still seem to have the perception that stockbrokers make tons of money: here’s my reality check.
Volatile markets; volatile incomes
There has certainly been volatility in our incomes in Asia – commissions have dropped from 1 per cent (prior to 2000) to the current 0.25 per cent, and industry players continue to increase market share by reducing commissions. One reason cited is that it brings us closer to fee levels in mature markets.
However, in my opinion, the risk of execution here differs from markets like the US. Brokerages there require clients to deposit cash into their accounts before being allowed to buy into the market. Singapore and Malaysia remain the only two places in the world which allow clients to make purchases before money comes in.
Clients are given a period of five days to settle outstanding contracts and can close off the position by selling into the market within this period – without settling the full contract value. The client will be remunerated if there is a profit and would have to pay for any losses incurred after closing off the position within the first five days. The drawback of this system is that it runs the risk of default from clients. This risk, I believe, should be taken into consideration when it comes to commission rates.
A game of survival
There are stockbrokers who leave the industry after less than a year. Admittedly it is rather difficult for someone fresh out of school to join the industry: you require a large client base to survive.
Many remisiers start as house dealers, where they are given proper training and guidance. However, some brokerages simply throw new recruits into the “war zone” and expect them to work miracles. They are not given any clients to start with either.
In view of these factors, not many newbies survive the first few years. But it is still feasible for brokerages to recruit these people as starting pay is fairly low. Even if they resign, clients may stay on, which will be an asset to the firm.
Dealers are under pressure to perform and in the process they may use proxy accounts to trade on their own and boost their commission even if they lack market experience. As a result, they stand a high chance of losing their own money.
The wanted
A senior dealer once told me: “After 25 years, I am still a dealer.” If you perform well, you will be promoted over the years and head a team of dealers. I would sincerely say that being a dealer or remisier is just like any other sales job. You have to motivate yourself, be willing to make a difference, persevere in times of adversity, and maintain good relationships with clients.
The Stockbroker is a Singapore-based finance professional. The views expressed are his and not those of eFinancialCareers.