After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
While known for being the flagbearer for financial product providers, the Financial Services Council is now making serious inroads into the financial advice sector.
Incentives highlight challenge of hyper competitive fintech market
In a world gone social media crazy, having an influential media presence along with a few hundred thousand Twitter followers will secure you more than a yearly wage. A guaranteed spot as an internet star promoting some product that a brand or company wants to push, can earn big bucks for every Instagram post advertising the brand they’re promoting. It’s a weird old world. Love ’em or hate ’em, it’s the new world of social influencer advertising.
What was interesting, was seeing share market trading platforms advertising on Instagram.
“Want $10 of TSLA on Superhero?” Leading share trading and superannuation platform Superhero was advertising an offer as part of a new referral program. The offer states – “Refer a friend and you’ll both receive US$10 of Tesla stock when they fund their account in 30 days.”
Both investors receive US$10 worth of Tesla (NASDAQ:TSLA) shares, using the unique link. CEO and Co-Founder of Superhero, John Winters said, “Tesla is consistently one of the most traded stocks on Superhero and by rewarding investors with US$10 of TSLA, we’re hoping to support investors in building their wealth with a stock we know a lot of investors are interested in.”
It’s a win-win for Superhero and Tesla.
In similar fashion, Tiger Brokers (tigerbrokers.com.au) are offering 90 days of $0 brokerage on US & ASX stock trading, plus get one AAPL share on your first qualifying deposit and win a FREE SHARE in one of TSLA, TWTR, UBER and more by Lucky Draw.
So not only do you get a 1 AAPL share worth US$140 (at the time of writing), but you also get to claim a free share in either TSLA, TWTR, UBER or others. Not a bad offer. CMC Invest were offering $0 brokerage up to $1,000 in Australian shares, together with $0 brokerage on US, UK, Canadian and Japanese shares. But no freebies.
Competition among the trading platforms has gone through the roof. Ever since the pandemic, more and more are joining the space. It also means the cost to acquire one customer has gone up. Needless to say, investing in customer acquisition is key for all online brokers.
With the advent of Robinhood’s $0 trades, zero fee online brokers are attracting customers hand over fist, and at a reasonable cost. According to Mozo, “Share trading has exploded in popularity in recent years, particularly among younger Australians who are looking for ways to grow their wealth beyond the conventional means.” The top share trading platforms in Australia are:
- Capital.com – Best trading platform Australia for beginners ($20 minimum deposit)
- etoro – Overall best trading platform Australia
- Skilling – Australia trading platform with spreads starting at 0.1 pip
- Avatrade – Trusted australian broker with mt4/5
- eightcap – Best mt4 stock app with low spreads
- plus500 – CFD broker with shares, forex, etfs and crypto
- Interactive brokers – Best trading platform Australia for penny stocks
- Crypto.com – Best trading platform with low fees in Australia
- Selfwealth – Best for long term investing
- Swyftx.com – Best trading platform with competitive spreads in Australia
- ANZ – Best trading platform with no minimum deposit in Australia
- Commsec – Largest australian online trading platform
- Cmc markets – Best online trading platform Australia for technical analysis
- Sharesies – Best for beginners
- Tigerbrokers – Newest platform
So how do these platforms make money?
With zero online brokers offering free shares in US stocks, there has to be a catch or how do they make money? US zero-brokerage pioneer Robinhood came under investigation for targeting young inexperienced investors. Robinhood effectively markets itself as a free service. Stake, Tiger brokers, and eToro offer similar services in Australia.
The way these platforms make money, is through the back-end revenue streams. These are Payment for Order Flow, Stock Loan, interest on free credit balances, and margin interest. In the US, when an investor buys or sells through the app, the order goes to a market maker that will perform the transaction. The market maker pays a small fee to the trading platform for submitting orders. The market maker will buy lower than what it sells for and pockets the buy-sell spread.
As in most other parts of the technology sector, it is clear that there just a few groups will ‘win’ gaining market share and then have the ability to extract more economic profits eventually, how they do this, and who wins, remains the biggest question.
