Brokers shuffle pack

Despite some big broking names jumping ship there is still plenty of retail service available for New Zealanders. ELLEN READ reports.

Global broking firms may be giving up on New Zealand, but retail investors in the local sharemarket have nothing to fear.

Despite the apparent exodus, people in the broking business and the New Zealand Stock Exchange say there is still plenty of retail service available.

Sure, some big names have jumped ship (think Merrill Lynch), shut down their retail businesses (think Credit Suisse First Boston), or merged (think ABN Amro and Craig and Co, Forsyth Barr and Frater Williams).

But the number of retail brokers working here has not been affected.

Most of the brokers who have lost their jobs with one firm have been picked up by another, and their clients tend to follow them.

"It's like your hairdresser or doctor. If they relocate, customers tend to follow them," says NZSE managing director Bill Foster.

"New Zealand investors at the retail end are well served. The only difference is the loss of international branding."

One question which does arise from the departure of global broking firms, he says, is who does the research - or whether it gets done at all.

"If a gap [emerges] hopefully it creates an opportunity for other people and analysts to sell independent research to smaller broking firms or publicly," says Mr Foster.

John Reuhman, director of Wellington-based niche broker NZIJ, agrees that retail customers are not losing out.

The stockbroking industry is very exciting to be involved in at the moment, he says, as the focus shifts from doing transactions to focusing on the lifetime worth of clients.

As for the firms which are closing, Mr Reuhman says, it's "just a shuffle", with brokers simply moving to another company.

A recent example is the move to ABN Amro by most of the brokers made redundant by Merrill Lynch when that company transferred its operations to Australia.

And just this week, Credit Suisse First Boston announced it was to close its New Zealand retail business.

It has been reported that departing staff will start a boutique retail sharebroking firm next year.

The departing brokers are working closely with CSFB, which could provide research to the planned firm.

The new company would provide another boost to the local retail broking market next year.

Departing Forsyth Barr director Andrew McDouall has already said he plans to start his own investment banking and retail broking firm next February.

New Zealand-owned Forsyth Barr is arguably the market leader in retail broking with a research team covering 60 to 80 local companies, while Macquarie Equities and JBWere have strong transtasman connections.

Below the big names is a raft of middle-sized companies, then the smaller discount brokers such as Access Brokerage, Direct Broking and ASB Securities.

ASB Securities managing director Tim Preston says there is likely to be more consolidation among the big industry players, but there is still room for more specialised operators.

"There will always be a place for niche focus ... If you are going to have to offer clients new issues and reasonable offerings you are going to need a good balance sheet behind you and that may restrain some of the smaller players," he says.

At the top end of the market, JBWere provides a full service including investment banking, research, institutional and retail broking.

John Cobb, manager of the firm's private stockbroking operation, believes the global firms are leaving New Zealand because they have not adapted their services to suit the local market and because, as business becomes harder for them internationally, they choose to concentrate on their Northern Hemisphere activities.

The retail market in New Zealand is unique because of this country's tax regime, the lack of a structured personal superannuation scheme and because of our egalitarian, do-it-yourself society - and his firm's Australian parent has allowed the local operation to adapt services and products for the New Zealand market.

"A lot of the others have had to just bring their overseas models in and apply them here and it just doesn't work," Mr Cobb says.

The consolidation of the retail market has presented huge opportunities for his company, which has invested heavily in its retail business recently, he says.

He remains "hugely optimistic" about the equity outlook in New Zealand but says it will rely on broking firms generating opportunities for companies to list.

"I don't think it's time to be depressed. I think it's time to get out there and make it work."

The NZSE does not collect figures on the breakdown of institutional versus retail trading.

However, Mr Foster estimates that institutions account for around 10 per cent of transactions but 60 per cent by value of trades through the exchange.

The other 90 per cent of trade, and 40 per cent of value, is on behalf of retail clients.

Mr Foster says the New Zealand market is well served across each tier of broking firms, from the discount to the full service - which include investment banking, research, institutional and retail broking.

Firms may be flexible with their charges if you're making a large sale or purchase but, at the smaller end of the market, minimum brokerage rates for a simple buy or sell deal through a discount broker are in the $23-$25 range.