The not so interesting, but no less important, administrative matters for investing.

​

Apart from understanding the basics to investing, such as your typical asset classes and trading psychology, as well as having the funds to invest, one other absolutely necessary aspect of things is administrative. 

 

This includes things like having a brokerage service, as well as relevant forms, knowledge or certification to invest (for certain markets or asset classes).

​

1.  Brokerage Account: Broker type

​

Brokerage platforms for investing may be broadly classified as full-service or low-cost brokerages.  

 

Full-service brokerages are more catered to investors, who typically engage in less frequent buying and selling of assets.  Instead, investors are those who buy and hold their assets for longer time periods, be it months, or years. 

​

With full service brokerages, you typically get better support – for instance, you may even have access to your own trading representative, who you can talk to regarding any investment matters. 

 

Examples include: DBS Vickers; UOB Kay Hian; POEMS; CGS-CIMB; iOCBC. 

 

The downside is that with the suite of services and support, the commissions per transaction charged by the brokerage tend to be higher (to be discussed further down in this article). 

​

On the other hand, low-cost brokerages are typically meant for traders, whose buying and selling of assets tend to be more frequent (e.g. multiple transactions within a week). 

 

While such brokerages have far lower transaction fees, they tend to come with additional fees which you should be at least aware of – e.g. handling fees; overnight fees; dividend deductions. 

 

At the same time, there could be inactivity fees charged by these brokerages, if you do not buy and sell assets frequently enough.  

 

However, even with such charges, low-cost brokerage fees are typically FAR less expensive than full-service brokerages. 

 

But this also means that investors who use low-cost brokerages tend to be on their own – the customer support for these brokerages may not be as good, nor personalized. 

 

Examples include: Tiger Brokers; Moomoo; Interactive Brokers; Saxo.

​

With reference to the this Dollars and Sense article (written in 2022), we can see the difference in pricing between these 2 types of brokerages.  On average, the minimum commissions for full-service brokers tend to come in around $20. 

 

On the other hand, low-cost brokerages typically charge $10 or below (or even as low as $1 per transaction).

​

2.  Brokerage Account: Account type

​

There are 2 ways to classify your brokerage accounts.  The first classification is: Cash upfront versus Cash accounts.  

 

Cash Upfront accounts require you to have the requisite funds already inside your account before you make any stock/asset purchase – aka, when buying shares, you need to already have the funds inside your account to pay for them.  

 

On the other hand, at least in Singapore, Cash accounts follow a T+2 rule – aka when you first make the stock purchase, you DON’T actually need to already have the required funds already inside your account. 

 

Instead, you are required to have the funds in your account by settlement date, T+2, or 2 working days after your purchase – which gives you some leeway to get the required cash transacted into your account. 

 

Typically, Cash accounts/transactions tend to have higher commissions per trade than Cash Upfront accounts/transactions (you can refer to Dollars and Sense article above).

​

The second way to classify your brokerage accounts would be: Custodian versus CDP-linked accounts.  CDP stands for "Central Depository", which is like a "bank" for your local Singapore asset holdings. 

 

CDP-linked brokerage accounts then, as the name suggests, typically cater to the purchase of local (Singaporean) stocks. 

 

In contrast, Custodian accounts are more catered towards the purchase of foreign stocks, although you could also purchase local stocks using these accounts.

​

When using CDP-linked accounts, any purchase of assets/equities made, is made under your name – and you are the direct owner of what you have purchased. 

 

Since you are a direct shareholder in the company, you get updates from the company, as well as voting rights in events such as annual general meetings (AGMs) or extraordinary general meetings (EGMs). 

 

Moreover, for CDP-linked brokerage services, you can transact the same shares using different brokerages – for instance, you can buy Stock X with DBS Vickers, and sell it off using another platform, for instance, POEMS.  

 

CDP-linked brokerages include: DBS Vickers, Maybank Kim Eng; UOB Kay Hian; OCBC Securities; POEMS; RHB; CGS-CIMB.

 

On the other hand, when using Custodian accounts, the stocks you buy do not actually belong to you – i.e. you are not an actual shareholder, officially, and do not get things like voting rights. 

 

Your stocks are, instead, held on your behalf, in the name of your chosen brokerage. 

Typically, such accounts charge additional stock holding (custody) fees. 

 

At the same time, they typically also take out a small proportion of any dividend payments you receive – you may consider this part of the custody fees charged by the brokerage.  

 

Custodian brokerages include: FSMOne; POEMS (Cash Plus); Stanchart; SAXO; IBKR.

​

Generally, due to the additional fees accruing to Custodian accounts, the minimum commissions per trade are also lower than that charged for CDP-linked accounts.

​

3.  A CDP account (for Singaporean shares)

​

As stated above, the CDP account serves as a “bank” – aka the depository – for your Singapore shares, once you have purchased them via your brokerage account. 

 

A CDP account is NOT the same as a CDP-linked brokerage account.  While the latter allows you to buy and sell shares, CDP is the place where your shares are stored, throughout your holding period.

​

As of today, applications for your CDP account, as is the case for your brokerage accounts, can take place entirely online.

​

4.  Requisite knowledge for investing in certain asset classes

​

Sometimes, brokerages require clients to show proof of experience, net worth, or understanding of certain products before they are able to trade them. 

 

For instance, to invest in Listed SIPs such as ETFs, you may need to fill up a Customer Knowledge Assessment form first to ascertain whether you’re qualified enough to trade these products. 

 

For investors needing to have their knowledge updated prior to transacting in such assets, SGX (Singapore Exchange) offers online education modules for the uninitiated investor to get acquainted with these products.

​

5.  Relevant forms

​

You’ll need to check with your brokerages what documentation is required for you to buy and sell foreign securities especially – for instance, to buy and sell US securities, you will need to fill out and submit Form W-8BEN. 

 

When there are forms to fill, ensure that they are filled accurately – because the processing time for these forms CAN be painful.  This is, however, mitigated by digital form submission, which is widely used today.

​

Conclusion

​

This article has introduced the key administrative elements required in order for you to make any investments. 

 

While the procedures and processes may be cumbersome, do take heed in accurately setting up this infrastructure for yourself, so that you do not get confronted with future administrative (or even legal) problems.