‘Saxo’, has always been one of those brokers that sit there and get on with it. They have that sort of Scandinavian approach that just seems to work. A bit like Ikea, it just does an excellent job of what it does without fuss or fanfare.
In the 20 or so years I’ve worked in trading and investing I’ve pretty much dealt with every sort of customer, from a Mr Jones type happily day trading away with a few thousand on their account to offshore hedge funds trading some fairly complex products and strategies. Most had one thing in common. They would also have an account at Saxo.
So what makes Saxo Capital Markets so quietly appealing to such a broad range of clients?
I sat down with Andrew Edwards, UK CEO to find out…
Andrew Edwards, thank you very much for joining us and talking to The Good Money Guide.
You’ve been CEO in the UK for two years now. What was the appeal of joining Saxo Markets UK?
Saxo has such an established, strong brand and reputation with a more sophisticated product and offering. That was very attractive.
There’s no question, Saxo has a true multi-asset platform, and having been in just the derivative space, it was quite exciting moving into something with a broader product set and greater reach.
I was interested in branching out into other product areas and Saxo’s growing white-label capabilities really interested me. A lot of firms have tried to develop a white-label offering, even my previous firm, but Saxo appeared to have a very mature product, and was therefore quite unique compared to a lot of other competitors.
Saxo has also always offered prudent levels of leverage – they’ve always been very conscious in who they do and don’t target from a customer perspective. Saxo targets a more sophisticated, professional trader, and that includes people that are looking to create wealth or enhance their portfolio value.
It’s a company that just felt like it had a richer offering – before I joined, I saw them talk about being the better broker, and actually, they genuinely are. In a nutshell, when I joined, every one of those things that I thought Saxo was about has proved to be true.
What does your typical client look like? Do you think you have a different type of client that comes to you, compared to everybody else?
We’re pretty unique actually. You wouldn’t compare us directly with an IG or a CMC and you wouldn’t necessarily compare us directly with a Hargreaves Lansdown. We sit somewhere in the middle and it’s a good place to be.
We have a broad range of clients. We have retail customers who come and buy shares, so that’s at one end of the spectrum. Then we have a lot of sophisticated traders who will use us to either trade futures and options, which a lot of our competitors don’t offer, will use us to trade the standard OTC derivatives, but also trade cash products actively or even bonds. So, we also cover that more sophisticated space where diversification in either product type or asset class is important.
We also work with a lot of hedge funds – we have a strong balance sheet, and are one of the larger firms in the industry, and so they’re happy to work with us. These are hedge funds who maybe won’t get the level of service they’d like to get from a Morgan Stanley or a Jeffries for example, and so come to Saxo.
Saxo obviously also has a very deep FX offering – it’s really where we started – so a prime offering to FX and hedgies or FX brokers looking for liquidity also come to Saxo.
At the far end of the spectrum are our white-label capabilities. Within that segment, we have digital banks like Moneyfarm, using our back end, all the way through to Banca Generali in Italy, who are using us as the back end of their wealth platform.
We cater for high street brands, large insurance companies, down to digital banks, and then all the partners in between.
We also – as well as being a B2C operator – are very well positioned as a facilitator business. We’ve built the infrastructure – global access to all the markets, custody networks, risk management frameworks, etc and all the other stuff in between. We can outsource that to various partners in many different ways.
Providers can either take the whole value chain as a full white label offering or take bits of it. I think that’s very exciting. There’s no question now that we’re moving into a world of outsourcing. Banks, brokers, insurance companies don’t necessarily want to go and build everything themselves – it’s costly and takes time. If they can rent it or arrange a partnership with a specialist, they’d rather do that than build it themselves. It’s a smart approach – cost efficient and means a faster time to market.
One of the things everybody always asks is the evil B Book and whether or not a broker is taking the other side of their trades. Clearly, when you’re talking futures and options, that’s not really an issue, because everything’s on exchange. What’s your view on this world?
We know that some companies B-Book all their flow and take huge directional positions against their customers. Saxo’s approach is different, we’re very much on the side of our customers and truly believe that running a profitable business and being a responsible market participant is not mutually exclusive – both client and provider can be successful.
You’ve got a broad range of outright clients but what about the people you’re providing white labels to? Do you have a typical partner?
We have a number of brokers across Europe, who have full white label offerings from Saxo. A good example is Dif Broker in Spain and Portugal – one of the biggest brokers there. We provide them with the full white label. We also work with the likes of Old Mutual and Standard Bank, so wealth managers on their wealth side, where we provide them with their full execution custody for cash products.
We work with Banca Generali, a huge Italian insurer, providing their whole back end. We’re now starting to work with a lot more of the robo advisors like Moneyfarm, providing them with their execution and custody.
In Asia, six out of the eight major digital wealth management solutions in Singapore uses Saxo. So we really can provide to the full spectrum of companies looking for either derivative execution and custody or cash product execution and custody.
In your time as CEO of Saxo in the UK, what’s been the best and worst moment?
It’s probably the same thing.
The hardest thing about joining was shifting from having been a derivatives only person in my previous firm and my firm before that and moving into cash products. The challenge was understanding the whole cash product world and starting to understand the investment universe in the UK.
We offer SIPP and ISA wrappers, mutual funds (through Saxo Bank) and a huge shares and ETF universe and have the full suite of investment products that someone might need.
You’ve got one dominant player, Hargreaves, and you’ve got a number of other digital solutions out there. Saxo now has all the products to go out and target that market and so the challenge has been understanding the best way to do that. It’s a fun challenge, albeit a hard one.
What’s been the worst part, what do you think can be done better?
Saxo has an amazingly advanced platform. When you have such depth and richness it can actually be quite hard to make sure clients are aware of it all.
For example you can put pre-market orders in for the US before the market’s opened, we’ve got some really sophisticated execution tools for options trading – we’ve got such a vast range of products, tools and features. That coupled with the fact that we cater for so many different kinds of clients, means we have to work hard to make sure that we’re getting the most relevant information to the right people. We’re not just selling one product like many of our competitors – we’re quite different and come from a different kind of DNA and articulating that in way that doesn’t bombard people with a great long list of USPs takes time and thought.
Being a one-stop-shop, diversification is obviously important, for example as with Woodford, you shouldn’t have all your eggs in one basket. Do you think customers should still spread their risk, not just in terms of asset class and funds, but should they spread it around providers as well?
Well, you must remember, our stocks are held in custody by the likes of Citi Group, HSBC. So the customers’ risk will sit with the custodian.
In the case of Woodford, the risk wasn’t the customers losing their money because of default of the broker, and even if someone like Hargreaves went bust, the stock is still segregated and protected, as is the cash. The problem they had is that they were being somewhat guided into a few funds, one being portrayed as a very safe liquid fund, which turned out not to be, and I think that’s been a difficult challenge.
A complete change of investment strategy in fact? The fund started off as one thing and then totally change tact…
Absolutely. I think our responsibility, as we move into this investment space, is to make sure that we give clients the tools they need to make good investment decisions.
Every broker wants to educate their customers and has their educational material but what do you make of educators within derivatives and FOREX world? Do you think people should generally stay away from them, or do you think they do add some value to the industry?
I think there are a whole range of educators. I think there are a few that are very good, and we’ve seen customers who’ve gone through some of these education programmes, come out with much better risk management skills, and a better understanding of how to manage their risk and how to manage their own emotions.
But there are also a lot of bad educators out there – the ones that are selling the dream and charging a fortune in the process.
I think when someone’s looking for an educator, they need to make sure they do their research, as it’s quite unregulated at the moment.
There are some firms who are aligning themselves with institutions and universities. They’re putting together properly governed courses to train people, and I think they are the types of educators who are the most interesting to work with.
Do you think educators will at some point need to become regulated?
Yes, probably. I think it’s a space that has the potential to be full of conflict and therefore the transparency of the relationship and payment structures is key.
Is there anything you can recommend to make people better traders and investors?
We’ve always really focused on the educational tools that we can offer – they are inherent to our business, built into to our platforms and not an afterthought – and I think the more people can educate themselves about trading the better.
Across the board, we try to educate on the importance of diversification and I think the whole Woodford story is a good example of why diversification is important. They found a lot of customers had put a third of their investments into one fund. It’s almost obvious advice – don’t put all your eggs in one basket – but people need to be reminded of that sometimes.
I would say that it’s also really important to limit the risk on each of your trades and make sure you don’t overexpose yourself because we know that’s why most traders lost money.
In fact, we provide a lot of back testing information to clients to show them where they’ve been successful or otherwise. I think that’s where brokers can really add value, we don’t always like talking about client’s losing money but in all reality if a client can go back and look at their month’s trading and see specifically which asset classes or trades didn’t perform for them and try to unpick why, that’s valuable learning. Was it because of the time of the day they were trading? Were they putting a trade on just for the sake of trading? Were they running the stop losses too much? Were they exposing themselves too much? We’re working hard to surface that data and present it back to customers to help them make better trading decisions.