This week on Traders Without Borders, we’re venturing over to the home of the most enthusiastic trading population in the English-speaking world: Australia. While its population is less than 10% of the United States, Australia is one of the hottest markets for retail traders across all asset classes. Here are some of the unique characteristics of Australia’s rapidly growing market for retail investing.
Higher Participation, Less Satisfaction
Australia’s online trading participation is 3.5%, higher than both the US, at 2.4%, and the UK, at 1.5%. In the past year, Australians have become even more enthusiastic investors, as more are drawn in by the promise of high returns from overseas investments. Additionally, more and more Australians are choosing to self-manage their superannuation accounts, which are similar to American 401k accounts.
Despite the growing popularity of self-directed investing, Australians are less satisfied with their brokers overall, with just 68% satisfaction, vs 79% in the United States. One reason for this: Australians pay about 50% more in commissions than their counterparts in the United States.
Less Service, More Research
In the United States, brokers have achieved high customer satisfaction by offering a suite of products for research and trader education. Since the Australian market has historically been much smaller, most Australian brokers offer few or no advisory services. Thus, the average Australian investor uses 7 outside sources for research, and 6 for decision-making, with the most popular sources being websites and mobile apps. One of these websites, SimplyWall.St, saw an opportunity to help investors when it launched in 2014. “The simple fact is that Australians have been paying more for less brokerage, and products like ours help fill the service gap,” said COO Nick Van Den Berg.
Just like your favorite laundry detergent, the Australian broker market is 3X concentrated. In both the United States and Australia, the top five brokers make up about 85% of the retail market share. However, the Australian market is much less distributed among these five players. Their #1 broker, CommSec, controls around 60% of the market share when you include it’s white-label platform for Westpac, one of Australia’s major banks. The next four major brokers, Nabtrade, CMC, E*Trade, and belldirect, have just 25% of the market share combined.
In the United States, the largest brokerage firms share the wealth more evenly; while the largest broker still controls a sizable 38% of the market, the next four brokers enjoy almost half of the entire market share. Additionally, note that the sheer size of the United States market means that all of these top five are huge in comparison to the Australian brokers – one reason they have been able to offer superior product suites for so long.
But as their market expands, new brokers enter the market, and retail investors become increasingly international-facing, the incumbent Australian brokers may experience a shakeup as their customers’ demand more services for lower costs. When this happens, diversifying their product offering will be an important pillar to stay relevant in the market.