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Australia’s biggest broker takes revenue hit from increased competition

In FY13 CommSec, owned by Commonwealth Bank (ASX: CBA), recorded lower revenue despite a 9.1% increase in profit as more investors entered the market.

Despite the S&P/ASX 200 (ASX: XJO) (^AXJO) rallying in the past 12 months, CommSec’s brokerage income declined to $710 million from $723 million in the previous year. The market’s rally should have boosted the company’s revenue thanks to around 100,000 more investors using the trading platform, but instead its competitors have been working hard to close the gap and capture more investors.

CommSec dominates the market with around 51% of online brokerage activity whilst ANZ’s (ASX: ANZ) E*Trade controls around 17%, Westpac (ASX: WBC) Online captures 7% and NAB’s (ASX: NAB) Nabtrade services 5%.

Reduced prices from the big banks are putting pressure on CommSec users as new investors can get a similar service for a discounted fee. For example, brokerage fees start from as low as $29.95 per standard internet trade on CommSec whereas NabTrade offers online trading for only $14.95.

This may not be a big difference for professional investors or those already accustomed to paying higher brokerage fees for extra services, but for simple buy-and-hold investors entering the market, there is no reason not to choose a lower cost broker. Many potential investors will try their hand at trading with small amounts at first before committing to larger trades if they’re happy with the outcome.

Foolish takeaway

Tapping into potential investors is more important than ever for brokerage firms because since the GFC, new entrants have been very wary about the risks associated with the stock market and have entered the market slowly. BBY Chairman Glenn Rosewall was quoted in The Australian as saying, “Despite the recent rally in equities markets, trading volumes have remained low and the post-global financial crisis weakness continues.” The companies that can coax these new investors into the market with attractive offers will have an edge over the rest.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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