The traditional way to invest directly in stocks and bonds and other tradable assets is to go to a stockbroker and have them advise on the best options and make the investments on the client’s behalf. It sounds simple but it’s not cheap. Professional advice and the detailed research it’s based on costs money and then there are commissions, fees and other costs to be taken into account. When all these are taken into account, it’s not unusual to find minimum costs of €100 per individual trade or transaction.
And if that wasn’t enough to deter you, most stockbrokers have minimum transaction levels, so you can’t really pick up the phone and ask to buy €50 worth of stock in your favourite bank.
But even if money isn’t a problem, the fun factor is still missing. The pleasure of picking the right stock at the right time, or indeed getting out before a fall in the market, isn’t quite the same if someone else makes all the decisions.
That’s why increasing numbers of Irish people are choosing to go it alone and use one of a growing number of online investment platforms to manage their own portfolios.
These platforms offer what is known as an execution-only service – absolutely no advice is given. They take buy and sell instructions from investors and they execute them. They may offer some research resources for investors but that’s as far as it goes. They also tend to make maximum use of the latest technologies to speed up service and minimise costs – this makes them extremely cheap in comparison to many more traditional brokers.
One platform which has made quite an impact on European markets in recent years is Degiro. The Dutch-headquartered company offers a service in 18 European markets and now has 300,000 registered customers.
Transaction costs
Transaction costs are very attractive. For example, an Irish person purchasing €1,000 worth of Bank of Ireland shares on degiro.ie will pay just €2.58 in fees. That compares very favourably with competitors. The advantage is even more pronounced when it comes to US shares. An Irish person buying €5,000 worth of very topical Tesla shares with Degiro would pay just 56 cent in fees.
“Ireland is one of the best countries for us,” says Paul Laverty, head of business development for the UK and Ireland with Degiro. “We see more interest in investing online in Ireland than in the other markets where we operate.”
He believes this is due to a combination of comfort with the technology and a genuine interest in investing. “When I read through the news in Ireland it is clear that there is quite a close-knit investment community,” he says. “It’s great that people talk to other people on online forums and many of them seem to prefer the DIY approach to going through asset managers. Platforms also reduce the barriers to entry when it comes to investment markets. For example, with Degiro an Irish person can buy US or UK stocks all on the same platform.”
The increased availability of financial information is also a key factor. “It is much easier to find financial information now,” Laverty says. “In the past, you would have had to go to a broker or adviser to get information but now you can go online and get a wealth of market information. Some of the top universities are also offering free online courses.”
“The market for these sort of platforms is growing,” says David Fagan of Davy Select, Davy Stockbrokers’ online investment platform. “That is the trend. The advantage of a platform like Davy’s is the availability of advice when required. Sometimes when a life event happens, advice can be appropriate. We can refer clients for advice seamlessly.”
He advises potential investors to take it seriously and not just as a bit of fun. “One thing I should say is that people shouldn’t see it as dabbling,” he says. “They are investing their hard earned-cash and they shouldn’t see it as a speculation exercise.”
Like most platforms, Davy Select offers users the ability to trade a fairly wide range of stocks and shares and funds either online or over the telephone. “We are seeing growth in the online offering,” Fagan says. “The Davy heritage goes back over 90 years and we have evolved to add the online platform to our more traditional offerings. But we also have the telephone offering for people who prefer to do it the more established way. There is a cohort of people who are comfortable and happy with technology. On the other hand, there are people who like to use the phone to ensure that the asset they want to buy is what they are getting. People can toggle between the two.”
‘Non-advisory service’
He also points out the need for investors to do their homework. “It’s an execution-only non-advisory service so it’s important that people have enough knowledge to avail of it properly. People can use the platform to build up a portfolio across a range of assets. We also offer pension structures in which people can hold those assets. This can make it a very tax-efficient investment. Also, people sometimes inherit shares and want to sell them, and they can use the platform purely for that one transaction.”
And you don’t have to trade at all if you don’t really want to. “You can open an account with Degiro with one cent and get access to a very nice platform for information purposes and that cent will still be there in 10 years’ time if you don’t do any trading,” says Laverty. “There are absolutely no hidden fees or charges with Degiro.”