From paper to platform – a brief history of how to invest

The most common question I get from friends about investing is not “What?” but “How?”.

Often, they have heard of advisers and brokers, online platforms, and apps that can invest their spare change, but are confused about where to start.

It’s no surprise – investing has changed a lot in recent years, and fast.

30 years ago, investors would send physical cheques through the mail to brokers and receive quarterly reports on their investments. Now, much like the transformations in shopping (Amazon), food delivery (UberEats), and entertainment (Netflix), investing has evolved to accommodate our convenience-driven lifestyle.

This technological evolution has given us a wide range of services able to accommodate any investor’s needs, from higher balance individuals desiring tailored advice, to day-trading Reddit keyboard warriors, the next Warren Buffett sifting through penny stock company reports, and first-timers investing as little as $1 a day in pre-set diversified portfolios to get a start.

To help give a high-level picture of the range of offerings available today, I have broken the services into three categories:

• person to person
• online brokers, and
• application brokers.

Person to person

Providing personalised advice along with various other services differentiates financial advisers and full-service brokers from other brokerage services. Think going to a restaurant rather than cooking and cleaning up yourself. You pay a premium for the convenience, knowledge and (hopefully) more desirable outcome.

What’s the difference between a full-service broker and a financial adviser?

Whilst full-service brokers make recommendations and execute clients’ trades utilising extensive research and expertise, financial advisers provide a broader range of services to help clients meet their financial goals. These services can include but are not limited to advice about budgeting, insurance, taxation, superannuation and, of course, investing.

Personal advice tends to involve higher fees than brokerage services and other platforms that do not offer advice tailored to your individual circumstances.

The Australian Securities Exchange (ASX) website is a great resource that can help you find either a full-service broker or a financial adviser.

Person to person: Best option if you are after a specialised and guided investment experience

Online brokers

Convenience continues to be the key to success for online brokers. Making it possible for anyone, anywhere, to invest with generally low entry fees and transaction costs and, in most cases, no minimum account balance, democratised investing. It’s no coincidence the emergence of online brokers in the ’90s coincided with the proportion of Australians owning on-exchange investments quadrupling from 10% in 1991 to 41% in 2000¹.

It should be no surprise that the Big 4 and a range of regional banks, as well as other large financial institutions, offer established online broker accounts with similar features and price points. Luckily for investors, disruptors in the space have emerged, competing against these larger corporations through lower pricing.

Some services may even offer $0 brokerage on a limited range of products you can trade through them, such as Australian ETFs, and low brokerage on other products like ASX-listed shares. Or brokerage might be free for investments held for a specified period, such as 12 months or more, in the interests of promoting a long-term investing philosophy.

A quick Google search will return hundreds of results comparing these and other various online brokerage options; however, this can often be more confusing than helpful. I have found Finder one of the better resources, as it provides easy to navigate, high level information with links to all of the available services.

Online brokers: Best option if you have some knowledge of the markets and want a more hands-on experience

App brokers

Feature-driven brokerage applications are the latest evolution in direct-to-consumer investing. As distinct from online brokerage services that have associated applications providing the same service, these apps compete through the uniqueness of their investment offerings.

Features offered by some investment apps include:

• Low minimum investments (for example, $50).
• Low brokerage, for example Commsec Pocket offers brokerage of just $2 per trade for transactions up to $1000 on a range of 7 ETFs, including NDQ Nasdaq 100 ETF and ETHI Global Sustainability Leaders ETF
• ‘Round ups’ – where your investment account is linked to ‘spending’ accounts (EFTPOS, debit and credit cards etc.), and the ‘change’ from regular purchases, such as the 40 cents left over from your daily $3.60 coffee, is automatically invested.
• Automatic investments – which gives users the option to set up recurring deposits on a daily, weekly or monthly basis.
• ‘Copying’ features – the ability for users to view, compare, and copy other successful investors’ portfolios.

App brokers can be accessed on your smart phone, downloaded through the relevant mobile app store.

App brokers: Best option if you are just starting out and looking for low-cost guided investments

Summary

Both the app-broking and online broking spaces are continuing to evolve with new platforms frequently emerging aiming to provide simple, low cost access, to the benefit of all types of investors. There are plenty of options to suit different types of investors, each with its pros and cons.

With your savings account likely earning less interest than your weekly coffee bill and all these options now available – there really has never been a better time to start investing.

This is the second in our new Launchpad series, written by our team to help younger investors build their knowledge of investing. You can find Launchpad articles by:

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1. ASX Australian Investor Study 2020.