Online Share Trading – The Role of Education

1. Online Share Trading – The Role of Education September 2006 Richard Seddon – Head of Online Share Trading

2. Why 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

3. Market trends and sentiments Previous company losses/market performance in general Investment trend at the time Risk heightened by lack of knowledge and market trends Perceptions of risk “The risk is too high” Stressful, an effort and time-consuming: “Shares need constant monitoring whereas other investments, you sit back and relax” Key barriers Lack of knowledge “From my point of view it’s a huge knowledge step”

4. Even greater need for knowledge Yet financial advisors not fully trusted Lack of confidence Greater reliance on brokers and financial advisors Exploring the knowledge barrier What is meant by a lack of knowledge? Very basic knowledge required! • Understanding of the investment jargon • Where to invest • When to buy and sell • How to tell when a company is doing welland how to predict a future loss “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”

5. Perception that large sums required 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” Influenced by lack of knowledge and market fluctuations And the risk involved Lack of knowledge leads to misperceptions Risk = heightened • 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

6. To 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

7. Best 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)

8. Market 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

9. Who did we see • Comsec (leading Discount Broker) • Fairfax Business Publishing • ASX (Australian Stock Exchange)

10. 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.

11. 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

12. 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.

13. 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

14. 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

15. 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

16. 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.

17. 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

18. 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

19. 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.

20. What has education done for us? 95% compound growth pa in revenues since inception in 1999. Education strategy started here

21. 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