Extending value proposition for brokers and wealth managers

How to increase your value proposition in a crowded market through OTC bonds

The Australian Bond Exchange (ABE) was started in 2015 with the sole purpose of creating a bridge between the wholesale OTC bond market and the public. It sought to address the need to make an otherwise closed market transparent for every investor. In other words, it wanted to level the playing field.

ABE identified several problems with the OTC transaction lifecycle and sought to change this so that it would deliver significant benefits to all stakeholders. One outcome was the ability to include a significantly broader number of market participants, reduce operational costs and reduce credit risk for both sides of the transactions.

In the last two fiscal years ABE has traded over $13 billion in bonds, has strong relationships with all major market participants and prides itself on a client-first policy. Its goal is to provide prudent and supported advice to protect an investor’s capital while maximising returns. ABE has also formed a partnership with recognised fixed income research house Bond Advisor, giving ABE a further bond qualifying resource.

Over the past four years, ABE has partnered with well-known market information provider IRESS, to create a gateway allowing wealth managers and retail advisers the ability to transact in OTC bonds directly using the IRESS interface. The system allows straight-through processing from execution to settlement. It is important to note that unlike other firms, ABE does not charge any fees for holding customer positions in custody.

ABE has made investing in bonds easily accessible to every investor by making its minimum investment $10,000, as compared to other similar firms that have much higher barriers to entry. ABE’s minimum investment and lower fees give your client the highest yields. Under the scenario where margins are already tight, each additional basis point makes a difference.

The Australian bond market is capitalised at around $2 trillion as at July 2021 and has over 3,000 listed bonds. ABE tends to focus on higher yield bonds, particularly corporate and private debt that carry returns of between 4-7% and maturities of two to five years. ABE has recently started creating and producing Yield Enhanced Securities (YES) to meet the demand of investors desperately needing viable interest income in this exceptionally low interest rate environment.

ABE has managed to create a solution for both retail and sophisticated investors, via their designated representative, to access the OTC bond market. Through their wealth adviser, clients can execute and settle in a manner identical to shares. Given Australians have over $1 trillion low interest-bearing accounts, distributing a part of assets into higher yielding securities makes perfect sense from an income and diversification perspective.

Investors should see an investment in bonds to secure income and protect capital with lower volatility. The Bond Exchange has a very comprehensive list of criteria any bond must meet before it can be listed on our platform unlike the admission criteria for stocks which is far less rigorous.

Wealth advisers and stockbrokers alike benefit on two fronts. The first is that, from a portfolio point of view, clients add diversification to their portfolios. The second is that the wealth adviser charges commission not only for execution, but the bond, which is a sticky asset, runs in the background and serves to increase the wallet for the adviser by increasing the fee it charges on assets under advice.

We believe that now bonds are accessible to everyone, the demand will increase dramatically from 1.6% to closer match the OECD average of 43.6%. ABE strives to provide every client with a well thought-out, hassle-free, fixed income investing solution.

For more information contact The Australian Bond Exchange https://www.bondexchange.com.au/ to find out how they can help increase your value proposition in a crowded market or simply email support@bondexchange.com.au