Investec goes head-to-head with EasyEquities

Private bank and wealth manager Investec has quietly launched Clarity, a simple no-fees trading platform.

There are zero admin fees, platform fees or commissions. Instead, it will generate revenue from an increased spread on trades (the spread is the difference between the bid and the offer price). Currently, the platform is only available to existing Investec clients, but it will be available more widely to South African clients in early 2024. Those who are interested can sign up for news on its launch.

Listen/read: EasyEquities has disrupted the SA investment market since inception

This puts Investec firmly on course to compete directly against EasyEquities, which has amassed 1.9 million investors since launch.

The EasyEquities platform drew sharp criticism from customers this month after it introduced a R25 ‘Thrive’ monthly fee for non-regular users. (Don’t call it a platform fee.) Effectively, investors would need to deposit more than they withdraw in any given month to avoid paying it.

Read: Uproar as EasyEquities introduces convoluted monthly platform fee

The platform, owned by Purple Group and Sanlam, has been battling declining transaction revenue (trading activity), as well as dormancy on many customer accounts.

Listen/read: Purple Group profit tumbles despite rise in EasyEquities users

It quietly added a third way to avoid paying the monthly fee (referring a new customer was the second option) following the uproar from customers. Any client who has maxed out their tax-free savings account annually will be “eligible” for Thrive Level 3 for the remainder of the year and, therefore, not pay the fee. A further concession is that it will only start charging Thrive fees in December, thereby giving clients more than a single month’s notice.

Some upset retail investors on the platform have scouted for alternative options, only to come to the conclusion that – even at R25 a month, plus commission and various standard administration fees on trades – EasyEquities remains the lowest cost option around.

Until now.

Enter Investec …

Investec has been somewhat coy and contends Clarity is not aimed ‘directly’ at EasyEquities, but it is hard not to compare the two.

Like EasyEquities, Clarity offers fractional share investing to allow clients to trade in equities for nominal amounts. There is no minimum trading amount (minimum first deposit is R25), and the private bank promises “access to over 500 local and international shares”.

Because it charges no specific fees, it will make money on the spread.

For trades, it will increase the spread by a maximum of 20 basis points on either the bid or offer side, depending on whether you’re buying or selling. This is in line with the effective commission charged in spreads by contracts for difference (CFD) brokers (albeit somewhat rich for US markets).

The pricing structure can be seen here.

Unlike typical CFD brokers, Clarity will not levy an overnight funding charge. Presumably, it is betting on volumes across its client base to offset these costs. Plus, any ‘typical’ investors (i.e. long-only customers) will give it liquidity to offer to would-be short-sellers in other parts of its business (and elsewhere) on the other side of that trade.

And as with EasyEquities, Investec says it will offer this exposure via fractional share rights through CFDs.

“When you trade on the Clarity platform you are trading synthetic CFDs.”

These provide “access to the performance of that share – including benefitting from any gains or cash flows (for instance dividends)”.

“While having exposure to the ups and downs in the share through the CFD, you don’t own the share. If you trade using your USD or ZAR account (non-margin accounts) you will have 100% exposure which means you can hold your positions for as long as you like, without having to worry about margin calls or interest charges. This allows you to invest long term and potentially benefit from the long-term performance of the market.”

When funding USD accounts for trading offshore, it will apply a 50 basis point spread automatically (the same spread is applied when transferring back to rands).

Leveraged trading

Clarity also offers margin accounts, where clients can trade with leverage.

Not only will it make money from the increased bid/offer spread, its margin rates are repo plus 2% (currently 10.25%) on long positions and repo less 1.5% (currently 6.75%) on shorts.

The amount one can borrow on margin will depend on overall account balance, current equity and the securities held in that account.

On offshore accounts, the margin rates are the US Fed Funds rate (currently 5.33%) plus or minus 2%.

At present, Clarity offers investors access to around 150-plus locally-listed stocks and a further 250-odd US-listed ones. A selection of the most popular exchange-traded funds (ETFs) in both countries are also available to trade.

Read:
Investment and performance fees 101
Navigating the investment fee landscape