Wednesday, July 02, 2008

Stockbrokers on the spotlight

In the past several months, hardly a day has gone by in the mainstream media and blogsphere without a barrage of condemnation and discussion centred on the conduct and performance of the Kenyan stockbrokers.

Due to the above and bad experiences from my inefficient stockbroker currently at risk of suspension, I went in search of a better brokerage firm in terms of online a/c, timely executions, communication and dividends payment, regular updates, cost effectiveness, portfolio management, quality research etcetera.

Aware of bankelele’s 2005 survey on where to buy shares, I emailed N.S.E listed brokers in addition to agents and others offering similar services. I further researched on other people experiences more so those in the Diaspora and regular visitors on stockskenya.

My search had mixed results generally disappointing from the stockbrokers.

Amongst the bad news was that from the brokers emailed on the list above, few responded to my email even after a reminder in 4 days, I must list the prompt ones; D&B, Faida, AIB and Genghis. Some listed emails were undeliverable.

Also, the overwhelming view from my search was that despite the sensitivity of this sector, its regulatory framework is weak and ambiguous. Resultantly, conflict of interests in the sector is blatant and remains unaddressed despite its hindrance role.

Further bad news was that the brokers and banking systems works parallel rather than harmoniously to each other causing delays, loopholes, duplications and exposure to fraudulent activities.

The search also found that lack of transparency and accountability was widespread as few of the brokers publish their financial statements and many are family owned. Hilariously, my failing broker director/secretary/treasurer is the husband/wife/son.

The good news is that there are many new kids on the block such as Tsavo, Hisanet, Renaissance, and Genghis though most are agents or investment advisers or fund managers. For the agents, despite constrains of working under problematic brokers, ambiguous regulatory framework and limited resources, most are doing a marvellous job though at an extra cost which could probably be eliminated if they are registered brokers. From the responses received, many have updated and efficient online services/research and timely execution and communication.

Another good news is that some of the brokers have started to shape up due to the heat generated by being on the spotlight and have improved on their customer services.

Uncharacteristically, the government appears to have belatedly heeded the investors concerns and recently announced measures to restore their confidence and the stockbroker’s integrity within 3 years, albeit thinking from its own improved service delivery initiative, should have been in a 1 year. Through the Finance Bill, the measures include; powers to search and confiscate rogue traders assets, increasing operating capital and separation/capping of ownership/management.

Ears on the ground
Yet to be confirmed rumours have been doing rounds on Equity bank entry into brokerage sector via a takeover or partnering with an existing firm. Knowing their thirst for opportunities and loaded pocket, something must be cooking.

Next on the spotlight
Due to the lack of a strong investors lobby group, all must work extra hard to get and keep both C.M.A and N.S.E on the spotlight. The former is well known for not responding to investor’s complaint or executing the mandate to protect investments. Hence, an autonomous body is urgently needed.

The Latter albeit slowly improving on their image of an exclusive rich members club, more must be done to address investors dissatisfaction with insider trading, lack of timely and transparent companies reporting as well as lack of timely dividend payments amongst others.

Most importantly the N.S.E must urgently commence on demutualization and online trading to eliminate unscrupulous brokers who are spoiling it for everyone.


Ssembonge said...

Dealing with brokers has become a nightmare for many Kenyans. For those in Kenya, they do not have a choice but to invest in the NSE.

Here in the US, we have access to probably close to half of the worlds public companies, why would I choose NSE over the US?

Proud Kikuyu Woman said...

Ssembonge,I'd still do it if only to hedge my risk. Bwana the U.S. market is getting scarier by the day, but as they say, in the long run growth may be steady. I hear this is not 1987, but there's no telling when the price of oil will stop rising and what it's overall effect on the NYSE is in this consumer economy. Maybe it's just me.

Now on some Kenyan brokers, it can be v. frustrating to email, sometimes watch some stocks make some desirable gains while you're waiting for some sort of response from a broker. No 24/7 support, and the 7 to 8 hour time difference does not help matters should you want to call. Anyone trades on the NSE online?

MainaT said...

My own personal intution is that brokers are no different from most busineses in Kenya where customer-service is concerned. Just trying flying with KQ, banking with KCB, et al. Infact, stockbrokers are no different from banks pre-2002.

The difference is of-course that the NSE is now very high profile and its institutions are only now catching up.
Finally, Kenyans love to blame somebody else. Many act like a broker should be investing in stocks for them. You hear of situations where somebody blames a broker for their losses yet they are ones who don't know how to place an order.
Before going to a broker, make a list of things that are important to you and post it on stockskenya-soon enough you'll be able to get a view.

bankelele said...

In their defence, IPO cycles are marked with a decline in non-physical [e-mail, phoen calls] customer service. e.g. my broker CFC has a moratorium on new accounts, as they sort out their new safaricom ones. My e-mails get answered [a few hours later] though and I am able to do trades that way
- it's emerging that [for corporates] going through an agent may get you better service

Proud Kikuyu Woman said...

Thanks for the tip, MainaT!

Ssembonge said...

BD has a feature about choosing the right stock-broker (pdf).

Ssembonge said...
This comment has been removed by the author.
lmangoli said...

very nice insight on stock broking. keep it up