When we start investing in stocks and other listed securities on the Singapore Exchange (SGX), we need to open a brokerage account. What may be lesser known to many investors is that our brokerage account only allows us to execute our trades to buy and sell stocks, and we also need to open another account – CDP account or custodian account – to store our investments after buying it or retrieve our investments from if we are selling it.
The convenient thing is that the brokerage firm we choose to trade with can help us open these accounts for us. Most brokerages in Singapore offer investors the ability to store their investments in both a CDP account or custodian account.
What Is A CDP Account?
Operated by the Singapore Exchange (SGX), a CPD account provides a centralised location to store investments registered in our own name. The benefit of this is that we can use one brokerage firm to buy and another brokerage firm to sell our investments. Similarly, we can use more than one brokerage firm to add to our investments in a single counter.
For this benefit, we have to fork out a CDP Clearing Fee of 0.0325% of the contract value. In addition, we also have to pay an SGX Trading Fee of 0.0075% of the contract value and an SGX Settlement Fee of $0.35, on top of the brokerage fees we have to pay.
What Is A Custodian Account?
A custodian account is typically operated by its respective brokerage firm, rather than in a centralised location. This means we can only buy or sell stocks initially bought with the same brokerage firm if we want to liquidate or add to our investments.
This allows us to bypass the CDP Clearing fees highlighted above, as well as typically offered more competitive brokerage commission fee. However, we need to be aware of “hidden fees”, including account maintenance fees, foreign shares custody charges and corporate action handling fees, amongst others.
The stocks we invest in are also not registered in our name, which means we may not automatically receive communications directly from the companies we invest in. This may include liaising with our brokerage firm in order to receive annual reports, attend Annual General Meeting (AGM), subscribing to rights issue or other forms of communications. Note that some brokerages may also not offer this option.
At the same time, this provides a layer of privacy, typically for larger investors who do not want to reveal their investment moves.
Here are five things we should note about custodian accounts in Singapore.
#1 Not All Brokerage Firms Offer A CDP-Linked Account Option
There are at least 15 Singapore-based stock brokerages we can open an account with. While we mentioned that most offer both CDP-linked brokerage account and custodian account, there are six brokerages that offer only custodian accounts to their investors.
This means investors using these six brokerage accounts do not have the option of storing their investments in their CDP account.
|Stock Brokerages That Offer Only Custodian Accounts|
|Saxo Capital Markets|
#2 Investing Via A Custodian Account Is Typically Cheaper
Regardless of which brokerage firm we choose to invest with, opting to store our investments in a custodian account is typically cheaper than storing it in our CDP account. This isn’t just because of getting around the CDP Clearing Fees of 0.0325%.
In fact, there are two main reasons. Firstly, when we use a custodian account, we are effectively “locking” ourselves in the ecosystem of the brokerage firm. As the investments are not registered in our name, we would need to sell it off or add to an existing investment using the same brokerage account.
This means the brokerage firms are more assured that they will receive more brokerage fees from us in future, and thus are more willing to earn a lower brokerage fee each time. A win-win outcome.
Being in the brokerage firm’s ecosystem will also likely lead us to using more of their services – whether to buy insurance, use their cash management accounts, invest our CPF and SRS funds with them and more. This also provides them multiple revenue streams from a single client. It also means they can afford to charge competitive rates on all products to incentivise clients to enter their ecosystem and stay in it.
Secondly, many custodian accounts also require our accounts to be pre-funded. This means storing liquid cash in our brokerage accounts, typically not earning a substantial interest return and, in some instances, also tapping on other products such as deploying into a cash management account while waiting to deploy it in the financial markets. This also lowers the risk of bearing losses in the event of any sudden market downturn.
Here are the online fees for brokerages’ custodian accounts in Singapore:
|Singapore Brokerages||Minimum Brokerage Fees||Trading Fees|
|Under $50,000||$50,001 to $100,000||Above $100,000|
|LIM & TAN Securities||$18||0.18%|
|Maybank Kim Eng||$10||0.12%|
|Phillip Securities (POEMS)||No minimum||0.08% to 0.12% (based on total asset value)|
|SAXO Capital Markets||$10||0.08%|
|UOB Kay Hian||$10||0.12%|
|Interactive Brokers (IBKR)||No minimum||0.08%|
For online brokerage fees for both CDP and custodian accounts, you can read our comprehensive article on Singapore stock brokerage account fees comparison.
#3 Not All Custodian Fees Are Equal
Do note that we also discussed the possibilities of “hidden fees” for custodian accounts, so we need to ensure we know what they are before utilising one. Not all brokerages have the same fees tagged to their custodian accounts. Here are some examples of custodian fees we may be subject to with the various brokerages:
- Custodian fees or account maintenance fees
- Foreign shares custody charges
- Corporate handling fees
As brokerages want to win new clients over, they also typically waive off any charges for transfers of stocks into our custodian accounts, especially if there is no change to the beneficial ownership. Typically, there may be charges for transfers out.
Do ask your brokerage, or review its FAQs, to find out custodian fees that are relevant to its service.
#4 If We Invest Outside Of Singapore, We Need A Custodian Account
We cannot say that we do not want to use a custodian account. As investing in companies listed around the world becomes as easy as lifting our fingertips, we naturally also have to rely on custodian accounts.
This is because the option of storing our investments in our CDP accounts is only applicable for Singapore-listed securities on the SGX. If we want to invest in companies or securities listed in Hong Kong, Malaysia, US, China or elsewhere, we don’t have much of an option but to store our investments in a custodian account.
#5 Our Investments Will Survive The Brokerage Firm Going Bankrupt
One fear many may have about custodian accounts is that if the investments are not registered in our name, how safe is it? And what will happen if the company goes bust.
To be clear, brokerages are obliged to hold clients’ money and assets, on behalf of the clients, in accounts separate from the company’s own money and assets, in accordance with the Securities and Futures (Licensing and Conduct of Business) Regulation issued by the MAS. This means if the brokerage becomes insolvent, it should not have anything to do with clients’ money or assets.
All custodian accounts, in one way or another, explains that if they ever go bankrupt, clients’ money and assets held with custodians will be excluded from their money and assets available to their creditors. It will remain for the benefit of the relevant clients subject to deductions of charges and other costs.
It’s May Not Be A Matter Of Which Is Better
There are pros and cons to storing our investments in a CDP account or a custodian account. However, sometimes there may not be an option.
As we can see, there is only a decision to be made if we are investing solely in Singapore shares. If we are investing in overseas shares, we will have to store our investments in a custodian account.
If we are leveraging on certain investment plans, such as a regular shares savings (RSS) plan, we will also find that we need to store our investments in a custodian account.
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