With low interest rates on deposit savings in recent years, consumers with small capital and the aspiration to earn a better rate of return on investment – above inflation and capital preservation – are opting for investment products by monthly contributions, which include the monthly stocks savings plans. A Consumer Council survey on 10 banks offering such plans has revealed wide variations in the ways they calculate various fees and charges. In the case of basic monthly fees, for instance, most banks will charge 0.25% of the contribution amount or $50 as minimum; but for a minimum monthly contribution of $1,000 this could run up to as much as 5%. If the contribution to the monthly stocks saving plan is in small amount, the basic monthly fee together with such charges as securities safe custody fee and brokerage fee upon the sale of stocks could add up substantially to a large portion of the total investment. Consumers with limited capital should give this their careful consideration.
Included in the monthly stocks savings plans were a basket of eligible stocks designated by the banks for consumers to select their own favourite stocks and set the amounts of monthly contribution leaving the banks to purchase the stocks at a preset date. Though the plans offer great flexibility in capital involved, the survey also found considerable restrictions on the choice and transactions of stocks. Apart from the eligible stocks, the monthly contribution date was set by individual banks which could take up to 1 to 4 transaction days before stocks purchase. As consumers are not free to choose their own timing in the purchase of stocks, a difference of even half a day could mean a sizeable discrepancy in the costs of investment, especially for those stocks with wide share price fluctuations.
The Council wrote to 20 banks in the collection of information and data on monthly stocks savings plans last month. 10 banks responded while 8 reported that they did not operate such schemes, and 2 did not reply. The 10 respondent banks offered consumers the choice of shares, from the least of 32 stocks to the most of 164 stocks. All required a minimum monthly contribution of $1,000.
The Council believes that purchasing shares through monthly stocks savings plan generally involve those do not have much capital, the method adopted for fee calculation, the minimum charge, and the charging model in combination could impact considerably on the costs of the investment. Take the basic monthly fee as an example, only 1 bank offered to waive the fee, another 1 set a fixed $50, the remaining 8 specified a 0.25% of the contribution amount, in addition to minimum charge and different charging models, from a monthly fee of $38 (1 bank) for each plan to $50 for each stock. In other words, under most plans, monthly contributions of less than $20,000 will all be subject to the minimum charge.
Given the charging models varied by per plan or per stock basis. If consumers choose to buy 3 stocks with a total monthly contribution of $9,000 on a per plan basis, they need only to pay the minimum fee of $50. But if the plan charges on a per stock basis, the basic monthly fee (assuming the same monthly contribution and monthly basic fee) will amount to 3 times as much.
Despite all banks don’t set or waive the securities account opening fees and stock buying charges such as stamp duty and stock exchange trading fee, consumers should be careful in comparing the variances in bank charges in stocks sales and agent services. 3 banks waived the safe custody fee, and handling fee for collection of cash and scrip dividend; 1 waived safe custody fee; the remaining 6 varied in the ways they calculate the safe custody fee – 2 charged $15 - $30 per month, 3 charged once every half year, (2 collected $0.15 per lot, another 1 from $100 to $150 depending on the customer status with the bank). The remaining 1 charged a fixed sum of $120 per year.
In stocks sales, all banks would charge what they would for with the usual stocks accounts; 7 banks charged according to the sales channels used and the customer status with the banks. In selling stocks through e-channel the charge ranged from 0.1% to 0.25% of the transaction amount in brokerage fee. The majority of plans set the minimum fee at $75 to $100. In selling stocks through the conventional channels – through the bank branches or special stocks hotlines – the fee varied from 0.1% to 0.5% of the transaction amount in brokerage fee while the minimum fee from $100 to $125.
Under the monthly stocks plans, consumers are enabled to make small amount and regular contributions in the purchase of stocks. Most plans allow consumers to sell in odd lots (insufficient number of shares to make up one lot) which are sold usually at lower prices than the usual board lots. The channels for sales of odd lots may also differ from the board lots as some banks do not handle odd lots over the phone. Though all plans allow consumers the freedom to make changes to their investment instructions at anytime, for instance, in the increase/decrease of contribution amount or the selected stocks, but not all changes could be conducted online; consumers should also take note of the time needed for the changes to become effective.
In the sale of odd lot, besides the aforementioned difference in share prices, consumers should take note that as most banks set minimum brokerage fee, most commonly $100. If the brokerage fee is charged at 0.25% of the transaction amount, each sale transaction of under $40,000 will be subject to a levy of a $100 minimum brokerage fee. In other words, the less the value of each stock transaction, the higher proportionally the handling fees involved they will be.
Consumers are reminded that stocks investments carry greater risks than deposit savings due to the volatility of share prices which may go rapidly up and down. Pay attention also to the various fees and charges and restrictions of the selected stocks in the plans; assess carefully individual ability and compare the details of different plans before making the final investment decision.
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