OpenMarkets launches as new online broker.

The Australian Securities Exchange has welcomed its first new online broker since 2007 following the launch of OpenMarkets.

An independently-owned stockbroker specialising in low-cost online trading solutions, OpenMarkets is a full market participant of the Australian Securities Exchange, National Stock Exchange of Australia, and SIM VSE.  It acquired the licence through its purchase of Sydney-based firm Cameron Stockbroking Ltd in May.

With its own clearing and settlement memberships, OpenMarkets focuses on end-to-end online trading solutions for the retail and wholesale market.   Additionally, OpenMarkets will build its client base through partnerships with third party financial services firms.

“We are a truly independent, low cost brokerage firm,” said OpenMarkets’ Chief Executive Officer, Rick Klink. “While individual and wholesale investors can use the service directly, we also intend to develop and grow the business through an open partnership approach. This will see us build relationships and integrate our services with third parties, such as research providers, for the benefit of our mutual clients.”

OpenMarkets is already live with a select group of clients, and will officially launch its retail services soon.

Michael Cox, Chairman of the National Stock Exchange, said: “The launch of online trading by OpenMarkets is an historic moment for NSX. It gives investors and traders a service they’ve been asking for.  NSX has enjoyed the addition of a record eight new brokers this year and the connection of our ninth being our first online broker is excellent news and further evidences the rapidly growing interest in NSX.”

The launch of OpenMarkets comes at a time when the stockbroking industry is undergoing significant consolidation and upheaval. Changes in the regulation of the financial services industry, more stringent compliance requirements from ASIC and ASX, coupled with the impacts of the GFC, have all made it harder for the smaller full service brokers to survive.

More importantly, FOFA reforms have forced the unbundling of execution and advice which has seen financial advisers seeking the lowest cost execution in response to increased pressure from their clients.

“Our focus on execution will make us extremely attractive to financial service providers wanting to offer their clients an online trading service that does not try to sell  financial products that are in direct competition with their services” said Chief Operating Officer, Andrea Marani.

Commenting on the launch of the business, the Australian Securities Exchange’s General Manager of Trading Services, David Raper, said “ASX is pleased to welcome OpenMarkets as a new market participant. The market structure and the needs of users have undergone significant change in recent years and ASX is pleased that OpenMarkets has identified the competitive advantage of hosting its market data and trading infrastructure in the ASX Australian Liquidity Centre.”

OpenMarkets resources and infrastructure are provided through a partnership with Paritech, a leading provider of front and middle office software trading technologies to the finance industry.   Through this partnership OpenMarkets also has access to an initial client base of high net worth investors through subsidiary company, Paritrade.

Mr Klink said the infrastructure for the trading platform was designed to be highly scalable and user friendly.

“OpenMarkets is the first Australian stockbroking business to fully embrace the power of cloud computing through our partnership with global giant Amazon’s Australian-based datacentre infrastructure.

“The use of cloud computing has significantly reduced our capital expenditure and risks, while still maintaining the security and ability to handle high trading volumes at any time.   This also means we are not reliant on legacy third party incumbents,” said Mr Klink. “This will allow us to introduce new developments faster and more efficiently as our broking business continues to grow.

“We are also offering a powerful set of trading web services that we believe will transform online trading in Australia.  These services will allow third parties, such as wealth management companies and research providers, to quickly and cost effectively deliver fully integrated trading applications via their own websites or mobile apps.”

OpenMarkets’ retail services include a simple ‘no-frills’ web trading platform together with an advanced trading platform. OpenMarkets’ transaction cost is $13.95 or 0.07% per transaction which is lower and simpler than the fee schedules of its bank competitors.

“Our focus is very much on providing a low cost, personalised, online, independent broking service,” said Mr Marani.

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Scott Fletcher

Australian shares have outperformed other asset classes over the past 10 and 20 years, according to the latest Russell Investments/ASX Long-Term Investing Report, but Russell warns investors need to be truly diversified and take a more active approach to deal with an increasingly changing market environment for the next 10-20 years.

The 15th edition of the annual report, commissioned by the Australian Securities Exchange (ASX) and prepared by Russell Investments, found the two key themes dominating investment returns for the past 10 and 20 year periods were falling bond yields in Australia and globally, as well as strong domestic economic growth driven by the resources sector – two major factors that look to change going forward.

“This report offers investors some practical guidance on the performance of different asset classes and in particular the benefits of ASX-listed investments over the longer term,’’ said ASX Business Development Manager Jonathan Morgan.

The report demonstrates the benefits to be gained from diversifying across multiple assets. Comparing the results for the 10 year period in this year’s update to last year’s report, the ranking of asset classes has changed significantly. Last year’s winner – hedged global bonds slipped to third place this year with a return of 7.9% p.a. while last year’s runner-up – Australian residential property slipped to fifth place at 6.5% p.a.

Instead, Australian shares and hedged global shares took first and second prizes this year at 8.9% and 8.2% respectively, thanks to the very strong risk rally in 2012. In contrast, cash remained unchanged at 3.8% p.a. while unhedged global shares was back in the black at 1.4% p.a., but still suffering from the very strong appreciation in the Australian dollar over the last 10 years to 31 December 2012. All these returns were against an inflation rate of 2.8% p.a.

The report also considers the impact of tax, costs and borrowing on ultimate investment returns. The aim is to provide investors with insight into how different investments have performed over the medium to long-term, after-tax and expenses. The difference in after-tax returns between types of investors in the same asset class highlights opportunities to choose the right investment structure. For example, the value of investing in Australian equities via a superannuation vehicle rather than directly was an additional 2.4% in returns to high marginal tax rate investors over 10 years.

Triple-treat investment returns a rarity

Over the past 10 years investors exposed to a number of Australian assets enjoyed a ‘triple-treat’ of investment returns. This came from Australian shares, Australian currency and Australian residential investment property.

Scott Fletcher, Director Client Investment Strategies, Asia Pacific, at Russell Investments said “Australia has experienced less extreme market fluctuations during and recovering from the global financial crisis – compared to those in the Northern Hemisphere – as the strong resource sector activity offset weaker domestic growth,” he said.

The Australian dollar has doubled in the last 10 years starting from around US$0.50 off the back of phenomenal commodity prices.

Australians’ love affair with bricks and mortar, supported by relatively low unemployment, solid growth in disposable incomes and falling borrowing costs, has also seen housing prices increase persistently over most of the past two decades.

Forward looking glasses: the next 10-20 years

Going forward, Mr Fletcher said investors needed to substantially adjust their expectations and revisit the traditional approach to investment and asset class diversification going forward. In a supplement to the report, Russell explored how likely the historical returns would be repeated over the next 10-20 years.

“There are a number of aspects investors need to consider with forward looking glasses, rather than looking in the rear view mirror,” Mr Fletcher said. The conditions that produced the ‘triple-treat’ returns from domestic shares, currency movements and residential property were unlikely to be sustained.

“The two speed domestic economy driven by mining activities has slowed to a single pedestrian-speed growth outlook and this will impact returns from multiple domestic assets in the future.” Mr Fletcher said.

“Although the AUD has fallen more than 12% in Q2 2013, it is still overvalued relative to history. Looking to the next 10-20 years it is unlikely that the currency will appreciate much further, and boost hedged returns by the same amount as in the past.

Another trend that is very unlikely to continue is the multi-decade trend of falling government bond yields. While these have contributed to very strong performance in domestic and global bond markets for the last 20 years, especially providing investors with safe havens in volatile times, more realistic expectations for bond market returns for the next 10-20 years are in order.

With yields off historical lows and returns harder to come by, Russell Chief Executive Asia Pacific, Alan Schoenheimer, said that investors who have been heavily reliant on bonds in the past really need to move to other sources of returns outside traditional government bonds to generate sufficient returns going forward. ”We know these investors need exposure to growth assets, but may not be able to stomach the volatility from equity markets. This is why an active strategy that relies on truly diversified sources of returns from a range of assets makes sense.”

“In addition, innovative bond strategies that move away from conventional developed market exposures to include emerging market bonds and other strategies (such as currency, credit and long/short) that are less sensitive to interest rates will help,” he said.

“Russell is seeing a new breed of investment solutions being developed to meet the needs of these investors. Actively managed, multi-asset approaches are one way to long-term investing for the changing landscape.” Mr Schoenheimer concluded.

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