“Mind The Gap!” – The life and times of a man on the move Episode 27

In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.

Monday: The Wiener is more than the ticket!

Happy new year all! The retinal impression that the fireworks have left on the visual resources of the vast majority of humanity following the pyrotechnics that adorned every bridge from Sydney to the Golden Gate on January 1 at midnight has now largely subsided, and the reality that another year is quite simply another year sets in as the commercial world heads back to a full time routine.

With that full time resumption comes a need to make hey, hence the globetrotting and screen gazing that will mark out the remainder of the year is now firmly in the central cognitive focus of every executive in our industry, hence I thought I would take a look at some comfort that can be taken and in usual frugal form, I refer to efficiency.

January is for some reason a month of desperation for suppliers to the corporate world, and airlines are no exception.

On Monday which was New Year’s Eve, it is likely that the very last thing on the majority of regular travelers’ minds would have been a late night trip to an anodyne business park or conference center in the middle of January, I managed to spot a genuinely available Norwegian Air flight from Brussels to Stockholm, a two and a half hour journey, for £9.

Yes, nine of the Queen’s gold coins to get from Brussels, a well recognized connection hub for European flights, to Stockholm, style central, and the new, highly technologically advanced nation poised to head into electronic trading.

As the BBC took to the streets of major UK cities to ask opinions on the rail fare increase that has now taken Britain’s admittedly excellent rail service from astronomic to stratospheric in terms of travel cost, airlines are pretty much giving away seats.

The wiener roll with mustard, sauerkraut and fresh onion with every relish available whilst waiting in the airport would be more expensive than the actual journey.

Let’s say, for example, that you are a sales executive for a brokerage technology provider and you are conducting meetings this January, the return on investment would be higher with such cheap  flights when providing services to customers.

There was even a flight from Cardiff to Larnaca, ideal for meetings with brokers, and for brokers to meet with their British prime brokers, for £19. The irony of this of course is that it would then cost over £150 (!!!) to travel by train from Cardiff to central London, negating the advantage.

Trains are efficient and excellent quality in the UK but they are more expensive than a chauffeur driven limousine and without question more expensive than the absolute bargain prices that airlines are now offering which facilitates trans-European travel in a the fastest and safest way possible.

A couple of years ago, I suggested that FX brokerages could easily establish their operations in other UK locations and still have the same level of connectivity and proximity to the major hosting and market integration centers such as Slough’s LD4 location served by Equinix, and yet rent office space for £1500 for a whole month rather than £85 per square meter in Central London, and pay staff £40,000 per year instead of over £130,000, however a train ride from London to Manchester or London to Liverpool or vice versa is…. are you sitting down?

Yes, £350!

No wonder every firm that looks for alignment with FCA and EU regulations and takes liquidity and technology from British tier 1 banks, prime of prime brokerages and integration vendors operates in Cyprus.

I am up for some cheap air fares though…

Wednesday: Bespoke banking? Stick to the mainstream or go totally modern.

As part of my spare-time investigation, purely out of interest, into which banking systems are better for small to medium commercial operations, largely as an attempt to decipher the best method by which FX industry-related companies can have banking arrangements that are reasonable, allow for client custodian services and do not charge like a wounded rhinoceros when making and receiving overseas transactions.

There have over the past few years, been many restrictions imposed on what banks consider to be ‘high risk’ business from a payment and a client custodian perspective, therefore banking practicality has become a very important point for retail FX brokerages.

Tuesday’s dialog with Handelsbanken sewed another seed in my mind that there are still only limited options for the various sectors in our business, those being either the traditional high street banks which, unless you already have an account history with them, will not likely open a brokerage account, or to look toward some of the new methods – my Transferwise experiment which is still in progress being a case in point.

Handelsbanken, which is Swedish but has many operations in Britain and only works with businesses on a referral basis, will not work with FX firms or businesses in certain jurisdictions, claiming that these are high risk entities. I visited one of their offices last week to find out more about their appetite for working with FX firms as a follow up to some initial research that I did in 2016.

FinanceFeeds research into banks that treat their commercial customers with disdain and block accounts began in three years ago when Piraeus Bank and Bank of Cyprus began blocking the accounts of brokerages.

Whilst this is problematic insofar as it forces firms to use third tier banks, it is not as toxic as the behavior of the Bank of Cyprus and Piraeus Bank, which accepts custom, then freezes accounts, meaning that companies cannot access their own capital, sometimes for months at a time, with the expense of having to keep either paying a lawyer or accountant to attempt to convince them to free it, or actually flying to Cyprus (many CEOs of Cyprus FX firms do not live in Cyprus) to be confronted by hand wringing automatons who cannot make any progress despite making special trips to the bank’s International Business Unit (IBU) in Nicosia.

This Tuesday’s visit to Handelsbanken where I met with a business manager unearthed some very odd rationale, largely centered on how specialist banks that are intended to ‘tailor their services to suit your business’ views our business sector.

Given the lack of option for brokerages, and the opportunity that this presents for high quality specialist banks, a sensible guess would be that companies like Handelsbanken would welcome brokerage business however when discussing the multi-currency requirement and global nature of the electronic trading industry, the response I got was “We aren’t really in a position to provide a more flexible FX facility (than mainstream banks which are expensive) thus limiting you to spot rate transactions. Furthermore I do not think it would be commercially viable for that type of company to bank with us at the moment, largely because we do charge account management fees and for each different account/currency account we would open, we would charge £50 per month.”

That would be expensive for many small to medium sized retail FX firms, hence it appears that even though the amount of competition has increased with new non-bank participants arriving in the UK and even more importantly in parts of the APAC region such as Singapore, where most APAC transactions can be handled by very clever and ultra-modern services such as Switzerland’s Pictet which opened in Singapore in March last year with a wholesale banking license.

Disappointingly, therefore, the same potential pitfalls remain for many smaller firms, those being either being rejected or charged a fortune by Tier 1 banks, or perish the thought, being tempted to bank with third tier European banks in Latvia or Georgia.

Just imagine, a brokerage with a frozen account cannot pay client withdrawals, salaries, rent for premises, suppliers – and then would be subjected to the media finger-pointing from clients which would assume that the firm was intentionally not paying, when in fact it was the bank freezing the firm’s account without explanation. The CEO of that firm explained to FinanceFeeds “I will never, ever forgive the Bank of Cyprus for what they did to me. After months of wrangling with them, I managed to free my capital but they did not provide any reason for having frozen the accounts, nor were they co-operative or remorseful. I will never do business with them ever again.”

Another brokerage owner, having reached the end of his patience with Bank of Cyprus, moved capital to a third tier bank in Europe, which was hacked by thieves who managed to steal over £350,000 from the account. This is possible because third tier banks do not have as good security systems as the main Tier 1 banks do.

A while back, I spoke to Lucian Lauerman at Saxo Bank in London  who told me“I took note of your recent research with regard to the difficulties experienced by brokerages in opening bank accounts for operating capital and holding client funds.”

FinanceFeeds then suggested that there could be a method by which specialist firms could provide these services, thus avoiding the pitfalls that many brokers are now exposed to by being pushed toward third tier banks.

“Sometimes we meet clients that have well run businesses and are doing good job for their clients, but they are having difficulties getting bank accounts” explained Mr. Lauerman.

“Recognizing this issue, several years ago we invested in Saxo Payments, a business that provides a real alternative. FX payments businesses need a bank account in order to send and receive payments and they need a service that is fast and low cost. The Saxo Payments Banking Circle provides exactly that solution. It allows companies who are serving merchants in the digital space to open physical and/or virtual IBAN accounts in 25 currencies, in their name and/or their client’s name” he continued.

The accounts can be domiciled in the UK, EU and Denmark, with Asia and the US becoming available in 2017. Companies can send and receive cross border and local payments at a low cost and within seconds rather than days, if the other company involved in the transaction is also a Banking Circle member. And payments are sent in the underlying client’s name, in order to increase transparency and reduce rejections. Here is a great solution.

In my opinion, in the mainstream banking sector, currently it’s either Lloyds Bank, who are very amenable to our industry as long as the business has no adverse history, or we have to begin to work with the new entities which are now only providing retail services but let’s say Western Union, XE, Transferwise and Revolut start offering business accounts – Hey presto.

Now there’s a market opportunity…

Thursday: Hargreaves Lansdown facing competition from across the pond?

Hargreaves Lansdown is a fascinating company that began its life in 1982 as an independent insurance brokerage and financial advisory service in Clifton, Bristol, founded by a computer salesman and an accountant.

Rather astutely, instead of fizzling out into obscurity as did many FIMBRA-registered Independent Financial Advisors of the 1980s and early 1990s, Hargreaves Lansdown embraced the future and developed its own platform for self-directed British investors to manage their entire portfolio, called the Vantage system.

The company became Britain’s largest retail financial services firm and has a massive, loyal client base in the UK, however the question is, does it now face competition from the United States?

Three years ago, we took a look inside Hargreaves Lansdown’s operations and especially at the company’s self-developed Vantage service, in-house operation, which offers customers a wide selection of option choices such as spread betting and CFDs, ISA’s, SIPPs as well as corporate and government bonds, ETF’s, Investment Trusts. The company considers its strong customer service and safety of client funds to be top priorities.

Trading in the instruments that the company provides are manageable via the Vantage system which holds different types of investments together in one place with one valuation and dealing service, and whilst CFDs and spread betting are very much part of the firm’s product range and are offered under the HL Markets brand, Hargreaves Lansdown has 14% of the UK’s market share in ISAs.

On Thursday, however, Merrill Edge, which is an online discount brokerage service provided by Bank of America Merrill Lynch that was launched on June 21, 2010, added a significant new service to its core operation which looks to align it with Hargreaves Lansdown as far as retail client services are concerned.

Nowadays, the only really effective means of engaging retail investors is to fully embody the comprehensive method of providing all data and market information, as well as methods of comparison which provide as much readily available detail to an increasingly discerning set of retail traders and investors. This is one reason why I am personally a staunch advocate of the continual development of automated actionable content.

It could well be that self-direction is the future. Looking at London’s new stockbroking options and Robin Hood-type services that are available, combined with the will by most brokers and regulators to move away from any sort of affiliate model, the power is now being placed in the hand of the trader and investor, which is how it should be.

Hargreaves Lansdown was one of the earliest firms to recognize this need and has done it very well indeed, however Merill Edge’s new “Fund Story” system is hot on its heels.

FinanceFeeds noted on Thursday that Fund Story aims to help self-directed investors more easily evaluate mutual funds and ETFs, including holdings, costs and ratings and that the feature is set to provide investors with a greater understanding of their assets and ultimately assist them in making better investing decisions.

Clients can also gain a clear view of the costs of a fund, including fees associated with buying, selling and owning a fund. They are also able to understand how fees are assessed and how they impact returns – including a future value analysis which allows clients to see how fees impact returns over time.

Furthermore, clients can assess whether a fund aligns with their personal values with environment, social, governance (ESG) fund scores from MSCI, a leading provider of investment decision support tools.

This goes hand in hand with Merrill Edge’s continual refinements which place the direction into the hand of the investor, and certainly points toward a mobile-led future for all investors.

The sooner the smaller retail FX firms realize that lead churning and operating via an over-saturated, inflexible legacy platform such as MetaTrader which does not allow any trader or broker to be master of its own destiny, the more in line with modernity the retail firms will be, otherwise they face losing their client base to the plethora of platforms which see the trader as the central point, and provide a platform that accesses and manages everything from one screen.

Multi-asset functionality and full ownership is the way forward, thankfully.

Friday: What a Schiphol!

As the usual selection of music-hall excuses for late take off were emitted from an equally cliche tannoy public address system at one of the UK’s provincial airports, I began to acquiesce and contemplate Friday night (the beginning of my Sabbath) at a hotel in Amsterdam’s Schiphol airport.

A 1 hour connection time is always a mild risk, but with one piece of light hand luggage, it is usually efficient and makes for a quick journey that avoids a trip to London from the provinces in order to secure a direct flight.

An advocate of going exactly where I want to go from exactly where I am, I prefer to take connections in order to start and land a few minutes from the origin and destination rather than make long journeys to major airports.

The Arthur Askey-esque voice announced that not only was the wrong type of fog in the air, but that some fuel from a baggage tug had been spilled. Fuel? Aren’t we in the electric vehicle age for airport operational equipment yet?

Anyway, with 15 minutes connection time, I have to commend KLM for their organizational skills. The flight status applications are great, and often a source of valuable information for me when making a quick connection, however KLM went one step further this time, by disembarking passengers almost next to the two planes that had the largest number of connection passengers and the narrowest time margin.

It was a case of off one plane, onto the next and up and away, and then onto the second half of Phil Collins’ autobiography for the next 4 hours of flying time.

Well done KLM, that is logistical genius and I would like to see other airlines do that, especially in busy airports which are connection hubs such as Schiphol.

There is always Yotel, but of course a continuous journey with very little downtime is the art of efficiency. I’ll be back. Unless other airlines are offering tickets for £9!

Wishing you all a super start to the first full week of 2019!