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The word is disintermediation. With the proliferation of lavishly funded e-commerce enterprises, this is happening in every sphere of activity. The grocer, the mobile store guy, the taxi company, the banker, the real estate broker and the mutual fund distributor are some of the people who were earlier indispensable to our lives and are now going out of business. Technology-driven platforms and applications (‘apps’) are replacing these intermediaries, creating a win-win proposition for both manufacturers and consumers.
Yet, in one area which took to technology earlier than others, nobody talks of direct access to consumers. People in the big cities have learnt to buy books, mobiles, shoes and even something as personal as lingerie online. Why do they need a broker to buy stocks which were dematerialised long ago and can be delivered directly into your account?
The Securities and Exchange Board of India (Sebi) implemented direct plans for mutual funds since January 1, 2013. By June that year, these plans came to account for nearly a quarter of the sector's assets under management. While the initial push came from debt funds, recent reports suggest around half of the fresh inflows from retail investors in equity funds are through direct plans. This shows that investors, even smaller ones, are gaining confidence about choosing and making their investments online.
Even the insurance sector, with a more powerful intermediaries lobby, has seen the advent of online products that allow you to buy insurance and unit-linked investment plans directly.
Now, for someone, who can understand an insurance policy with its numerous terms and conditions and buy it online, buying a stock without the help of a broker should not be a difficult proposition. Why are Sebi or the exchanges not even thinking aloud about it?
After all, what great help is a broker to a small investor? Common sense demands that the broker deploys his best resources to some of the larger clients. So, you are going to get some a fresh-from-college relationship manager who might only be parroting what he heard on TV this morning to push the stock his boss wanted him to.
In addition, you are showing your cards to a potential competitor in the market. Most broking firms have a proprietary book where it uses its own money to buy and sell stocks. Nothing stops your broker from playing against you, despite the obvious conflict of interest. What is worse is you are paying him to fleece you.
This column would not be enough if one begins quoting anecdotes of retirees and widows falling prey to wrong broking advice and seeing their life’s savings vanish in thin air to margin calls. Brokers often use the client agreements to absolve themselves of any responsibility in such cases. As in the recent scams, after playing along, they don’t think twice about being turncoat and play the victim.
No wonder big successful investors on the Street like Rakesh Jhunjhunwala have their own broker licence. Large corporate treasuries also often execute through their own broking firms. Beside the considerable savings on transaction costs, these big guys are also able to play their cards close to their chests, an underplayed but critical factor to investment success.
Online trading has been available in the market for years. But, there is still a broker who sits in between, providing the platform and charging a fee. It is not the objective of this piece to advocate the end of stock broking but, if an investor wants to do without it, he should have an opportunity and an avenue to do so.
