Online Share Trading – The Role of Education

September 2006

Richard Seddon – Head of Online Share Trading

2Why do so few people invest directly in shares in South Africa?

Market in SA is very small (around 150,000 private clients accounts)

Most people invest in Unit Trusts and fixed deposits

There are “perceived” barriers to entry to the stock market

In late 2004 we conducted a study and best practice “field trip”

Conducted a study into the local market

Visited the most active private client market in the world

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Market trends and sentiments

Investment trend at the timePrevious company losses/market

performance in general

Key barriers

Perceptions of riskRisk heightened by lack of knowledge and market trends

“The risk is too high”

Lack of knowledge“From my point of view it’s a huge

knowledge step”

Stressful, an effort and time-consuming: “Shares need constant monitoring whereas other investments, you sit back and relax”

4Exploring the knowledge barrier

What is meant by a lack of knowledge? Understanding of the investment jargon Where to invest When to buy and sell How to tell when a company is doing well

and how to predict a future loss

Very basic knowledge required!

Lack of confidence

Greater reliance on brokers and financial advisors

Yet financial advisors not fully

trusted

“Lack of confidence makes me feel very vulnerable. Anything can happen, anyone

can tell me anything”

“I also feel intimidated by all the jargon and you feel you have to be some accountant to

understand it”

Even greater need for knowledge

5Lack of knowledge leads to misperceptions

By past experiences– With losing shares– With brokers who they perceived as being

rip-offs – high fees and expensive software packages

Bad past experiences – linked ultimately to a lack of knowledge about competitive rates and playing the market

Risk = heightened

And the risk involved

Influenced by lack of

knowledge and market

fluctuations

Amount of money that is required to invest

“Ignorance….we always think the only way to buy shares is through a broker who require a minimum

of R600 000 investment capital….you discover later other alternatives of doing it”

Perception that large

sums required

6To summarise research

The main barriers are:

Lack of knowledge

Lack of time

Perception of risk

High entrance costs

Issue more with investing in shares as opposed to it being through an online channel

7Best practice field trip to Australia

Why Australia?

Australia has one of the highest retail ownership of shares in the world

51% or 7.4 million of population owns shares either directly or indirectly

39% or 5.7 million manage their own portfolio directly via the ASX

Huge boom in investing due to:

Privatisations (Telstra, CBA, Qantas)

Demutualizations (AMP, IAG)

DIY superannuation funds

Very active exchange which is listed

Average deal size of $10k or R50k (R30k)

Average portfolio size is $41k or R205k (R209k)

8Market size and drivers - 2004

Demographics

2/5 males, 1/3 females

All age groups show significant holdings

Source of information used for advice:

Newspapers and print media (46%)

Family of friends (32%)

Internet (26%)

Financial planers (26%)

Magazines (24%)

Investor attitudes

Strong sense of taking responsibility for one’s own financial future

Positive view towards shares and the opportunities offered by the stock market

64% of investors only invest in blue chip companies

9Who did we see

Comsec (leading Discount Broker)

Fairfax Business Publishing

ASX (Australian Stock Exchange)

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Who did we see

Comsec Biggest broker in Australia with 1.1m accounts adding 1000 per week.

1 in 4 trades done on ASX are Comsec, did 28000 trades per day when we were there. 6 years ago they were doing 2500 per day.

Made $100m net profit 2004.

Clients unhappy with returns from fund managers.

Grew client base by educating masses.

Spent $2.5m (R13m) in one year, visited 800 locations and 150,000 people.

Taught them about shares – got rid of the jargon.

had night shifts at one point when their education strategy kicked in.

Do not give advice of any sort.

Key lessons

Education a great way to grow client base.

Need to keep it simple.

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Who did we see – Fairfax Business Publishing Key findings

Shares magazine hugely popular due to:

Telling what a company does

Why to buy the company

Use of basic language

Simple style of writing

Most successful business publication ever in Australia and one of most success in world based on a per capita basis

Readers moved along the education curve moving on to more advanced topics.

Shares noted in magazine ended up moving the market

Helped to educate the market

Key lessons

We should partner/sponsor stock market education with media.

There is demand for basic investment materials

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Who did we see – ASX Key findings

“Wealth begins with better knowledge”

Education a big priority of the exchange (retail, fund managers, brokers and media)

Drives up transaction volumes and liquidity

Education budget is $4.5m (R23.5m) per annum.

Have seen a 10 fold increase in the number of retail trades in the last 3 years

Retail trades make up 55% of all trades on the ASX

Key lessons

Face to face most effective but online has value as well.

We need to cover the basics.

Also educate the media.

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Conclusions

There is massive potential for success in SA through education

Need to grow the market in SA - it has been done in Australia

Education is the way forward as confirmed by trip and our own research

Demystify the market

Get clients to trade shares then grow them into more sophisticated products over time.

Concentrate on selling the market

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What have we done with this?

Set up education as our differentiator

Provide free one hour presentation to the public on the basics

Run the following courses for our clients: The basics of investing on the JSE

How to use the website

Technical analysis for beginners

The Truths of the Market and Trading Skills

Investing using Fundamentals

Practical / Advanced Technical Analysis

Warrants and Share Instalments

Single Stock Futures

Online courses of the above

Most courses are free or minimal charge

Sponsor “Investing 101” in conjunction with the JSE on Radio 2000

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What have we done with this?

Work with JSE: Company presentations (Altx, Mining, Property)

Provide trading platform for JSE Investment Challenge

Focus on women roadshows (women’s magazines)

Satrix Roadshows

Fin24/Naspers – Media partner Fin24 website

Fin Week educational supplements

Men’s Health and other magazines

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What have we done with this?

Addressed the high cost of investing .

Automatic Share Investment (ASI). This is a once per month direct debit/saving product that allows people to "save" a minimum

of R500 into a choice of 20 different shares (minimum of R500 per share selected per month).

The shares will be a selection of to 40 shares plus Satrix.

Cost R20 plus 1% inclusive of all costs

We see that this product will allow us to significantly grow our client base over the long term.

We will use this as a way to grow clients into our full offering over time.

Product endorsed by the JSE as helping the man in the street to gain direct access to the JSE at a low cost.

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What does education allow us to do?

Help clients make good investments

Clients trade more frequently when they are confident of their decisions

Teach clients to place stop losses to play another day

Help clients to use our website

Move clients to more sophisticated products such as share instalments, warrants and single stock futures which have higher margin

Get face to face feedback from clients

Get loyalty from our client base – will recommend to friends

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Client Satisfaction Survey results and clients

Conducted our annual survey of clients in 2006

•Results:

•81% rate us very good to excellent

•98% rate us good to excellent

•Clients are very loyal with 88% “very likely” to recommend us to a friend

Client Leads come from:

•Friends recommendation – 25%

•Fin24 – 20%

•Standard Bank Homage – 18%

•Internet Banking – 17%

50% of our clients have never invested in shares before

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What drives our revenues? – Education!

The biggest driver of the business is brokerage revenue and number of trades.

This makes up the bulk of our revenues but is also one of the biggest contributors to costs.

Education helps clients to make the right decisions and stay a client.

Second biggest driver is number of accounts.

This impacts on the number of trades (more clients equals more trades) but also the monthly annuity income that is generated from our administration fee per account.

Education help us retain our clients.

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Total Revenues

Accounts

Revenue and Accounts Growth

What has education done for us?

95% compound growth pa in revenues since inception in 1999.

Education strategy started here

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Where is your money?

Don’t have an account?

open one online at www.securities.co.za

Or call 0860 121 161

Email: securities@standardbank.co.za

Richard@standardbank.co.za