As competition intensifies in pricing, financial institutions and investment platforms must prioritise complete transparency to provide investors with a clear understanding of costs, enabling them to make well-informed decisions.
Historically, the financial industry faced criticism for its lack of transparency, leaving investors unaware of hidden fees, costs, and potential conflicts of interest. However, with technological advancements and growing market competition, there needs to be a concerted shift towards greater openness.
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Open investing entails offering investors a comprehensive view of all associated costs, fees, and charges. Saxo recognises the significance of openness and advocates for its widespread adoption across the entire investment sector.
We recently expressed concern about banks and brokers retaining the benefits of central bank rate hikes instead of passing them on to clients. While not immediately apparent, this practice has significant implications for all individuals, and it is crucial to bring it to light.
The need to nurture a win-win relationship with clients
Yes, the financial industry must make money – so do we at Saxo – but the balance needs to be right; we need to nurture win-win relationships with our clients. While a few embrace a customer-first approach, swiftly sharing the benefits of rate hikes with those who entrust them with their funds, most follow a different path.
A thorough analysis of the entire industry is necessary, particularly for those endorsing a commission-free model. The rise of 0% commission models – which have seen considerable marketing exposure and spend – has transformed the investment landscape, attracting a new wave of investors seeking seemingly cost-effective alternatives. The introduction of game-like elements to investing platforms, combined with commission-free trading has attracted a new generation of investors looking to make the most of their money. However, while this may seem attractive, investors must understand the underlying business models and how platforms generate revenue.
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By GlobalDataThe costs of sustaining a 0% commission model
The industry should be more open about the costs associated with sustaining a 0% commission model, which often include significant factors like FX conversion fees. Openness in this regard ensures that investors are aware of potential revenue streams, such as interest on cash balances or payment for order flow.
Saxo has taken the industry lead by announcing significant pricing changes across key markets, with a global rollout in the coming months. These aim to provide clients with substantial price reductions, particularly in trading US stocks and home market stocks, as well as ETFs, ETPs, Listed Options, and Futures. Saxo’s U.K. customers now pay a minimum of $1 commission on US trades, and £3 commission on UK trades. Other changes include the removal of platform and £7.95 custody fees, while currency conversion fees have been slashed to 0.25% across all accounts.
We also urge investors to be discerning when selecting investment platforms and questioning costs. Understanding the compounding impact of costs and fees on long-term investment returns is essential.
Even seemingly minor fees can significantly diminish the value of an investment portfolio over an extended period. For instance, a 2% annual fee may appear modest, but over 30 years, it can slash the potential value of a portfolio by more than half.
Impacting clients’ wealth-building potential
This effect is a result of compounding, where both investment returns and costs accumulate over time. Consequently, every dollar spent on fees is a dollar that isn’t contributing to returns. This can have a profound impact on the wealth-building potential of investments over extended periods.
Therefore, opting for investment options with lower fees can substantially boost the long-term growth of an investor’s portfolio. Regulatory authorities in various regions have recognised the availability of cost-effective alternatives to traditional investment funds.
Index funds, such as those tracking market indices for example, provide a viable and more economical choice. However, the adoption of such solutions varies significantly across different countries and the ramifications of opting for more efficient investment solutions are substantial. Not only could they potentially reduce the retirement age, but the accumulated savings could also enhance lifestyle choices.
As technology reshapes the financial landscape, the demand for clarity in investing is growing. Saxo takes pride in leading the way with competitive prices among major banks and brokers worldwide. Lower costs translate to higher potential gains for clients, reinforcing the notion that transparent investing should be the default standard across the industry. This shift is not only driven by market competition but also by a commitment to empower investors and foster openness and honesty within the financial sector.
The need to shift to a more ethical financial landscape
Transparent investing is not just a passing trend but a fundamental shift toward a more ethical and investor-friendly financial landscape. As the industry evolves, the imperative of open investing should be embraced by all, and Saxo is leading the way with its advocacy, demonstrating a commitment to investor well-being.
It is time to establish a new standard for financial institutions and investment platforms. Investors should heed Saxo’s call to engage exclusively with platforms prioritising transparency, ensuring a future where informed decision-making becomes the norm.
Simon Camilleri is CEO at Saxo UK
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