Why Brokers Charge Different Fees - The Importance of CHESS/HIN when Choosing an ASX Broker

What is the difference between a CHESS Broker and a Custodian Broker? Why is there such a big difference in broker fees? Today in this video, I look at why you generally pay more for a CHESS broker, but also why it's worth it. Custodian brokers can absolutely work for some investors, but you need be aware of the model and the issues that can arise with this type of broker.

1) Bankruptcy risk - It can be very difficult to get your portfolio back if a custodian broker goes bankrupt. This exact event happened to a broker called BBY back in 2015 and investors are still waiting to get their money back after 6 years of claims. Even then, at best, the investors will get less than 3 quarters of their funds back. The opportunity costs of having your money tied up like this can be devastating.

2) Missing corporate notifications and offers - With CHESS brokers, companies have direct communication link to its investors and can offer things like Dividend Reinvestment Plans (DRP), Voting Rights, and Share Purchase Plans (SPP) very easily. With a custodian broker, there is no direct communication line between the company and the investor, so it is up to the broker to pass on that information. This can easily get lost en-route and never reach the investor which incurs more opportunity costs. This exact thing also happened to Westpac's custodian branch and they were fined $87 million dollars by the ASIC for it.

⏱️TIMESTAMPS
0:00 Introduction
0:35 The Basics
1:49 Custodian Model
2:52 Problem 1 - Bankruptcy
4:55 Problem 2 - No Direct Communication
6:52 Broker Cost Overview
8:09 Personal Opinion
8:40 Conclusion

So where do you stand on brokers? Are you with a CHESS or a custodian broker? If you are looking to sign up with one, which model do you prefer? Let me know in the comments down below!

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Disclaimer
The information on this video is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.

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