Brokers, Money and Personal Relationships
by andrew@JijiniMarkets - Mon 11 Dec 2006
Prime Brokerage, like Private Banking and Private Wealth Management, is a service offered by the world's big investment banks to their high net worth clients. The service, as the name suggests, comes with numerous premium services not offered to smaller clients. These services include personalised daily reports, exclusive research reports, overdraft facilities as well as a wider range of investment facilities - such as derivatives - with which to maximise returns and minimise risk or loss. The investment banks go to great lengths (expensive lunches, golf sessions, private jets, etc) in order to win the custom of these wealthy clients. These client-bank relationships are based on and sustained by money and personal relationships.
Recently I ceased trading using my Dyer & Blair account after spending 8 months trying to settle my KenGen IPO allocation. As well as my KenGen problems, I also had complaints about: one unexecuted HFCK buy order (despite an email and the online system confirming the purchase); poor communication; unanswered emails; and a few security concerns about their online system. The complaints investors have with NSE brokers tend to have common themes: poor trade execution; accusations of fraud; poor communication; and unreliable online systems. Interestingly, although these issues are more prevalent among Kenyan brokers, they are not exclusive to Kenya or even the developing markets - the Enron and WorldCom sagas, among numerous others, are testament to this. Despite laws and regulations in developed markets, small investors are occasionally still prone to receive substandard service and have a higher chance of losing money during a stock's collapse. For NSE investors however, this experience is not occasional but frequent and common.
In switching brokers, I analysed my relationship with Dyer & Blair in an attempt to determine what I could have done to improve the service I received during my 12 months with them. This ultimately lead me to the question: what does it take for a broker to give a client a certain level of service? Brokers are primarily motivated to act by either strong regulation, the possibility of high commissions or through having a personal relationship with a client. The solution for me, it seems, is three-fold: lobby the Capital Markets Authority to regulate the market more stringently; increase the monetary amounts or frequency of my trades; and form a personal relationship with my broker. As an individual, the first solution is near impractical, the second possible but limited and the third necessary for progress in any walk of life, more so when investing through NSE brokers.
*I invited Dyer & Blair to comment on the issues covered in this article and to date still await their response.
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