Davy Stockbroker Review: Most would agree that the New York Stock Exchange (NYSE), located on New York City’s Wall Street, is the most powerful stock market in the world. It certainly is the largest, with combined market capitalization of listed securities hovering around $30 trillion dollars.
The global economy rises and falls with the NYSE, but it hasn’t always been that way. In fact, the earliest version of the NYSE was just 24 stockbrokers who signed an agreement in 1792. It wasn’t until 1817 that the group formalized their project under the title New York Stock and Exchange Board.
Meanwhile, investors in other parts of the world were forming their own groups. For example, in 1793, the Dublin Stock Exchange was established in Dublin, Ireland.
The London Stock Exchange, which can trace its roots back to 1698, was formally established in 1801. Large exchanges like Japan’s Tokyo Stock Exchange (TSE) and China’s Shanghai Stock Exchange (SSE) followed roughly 100 years later.
This was the state of the world’s stock markets when brothers James and Eugene Davy launched their careers in 1926. They founded the Davy Group, which would go on to become the largest stockbroker in Ireland.
Davy Stockbroker 101
Davy immediately attracted the attention of Ireland’s financial community, because it offered something its competitors could not: a deep understanding of the Irish perspective.
Ireland had just won its independence from England in 1921, after years of conflict. On the investing front, up until the Davy brothers launched their firm, the vast majority of brokers handling trades from Irish investors were trained in London and focused on trading British-quoted assets.
Irish pride was at its peak, and investors were glad to have an opportunity to invest with members of their community.
Tapping into Irish nationalism wasn’t the only thing Davy did right. The company focused on two other critical markets: the underserved Catholic middle class that was just starting to emerge, and Ireland’s overwhelmingly popular rugby community.
Eugene Davy had, after all, played for and managed the Irish team, and he later served as President of the Irish Rugby Football Union.
The Davy brothers kept their successful firm in the family, training their sons to manage the business. They began transitioning leadership to their sons in the 1960s.
Today, the Davy Group is an independent firm owned by its management and its employees and led by CEO Brian McKiernan. It is made up of several distinct businesses:
- J&E Davy – This wealth management firm operates internationally, providing advisory services and portfolio management to individuals and groups of all sizes. Clients include investment companies, institutions, private funds, trusts, individual investors, and charitable organizations.
- Davy Corporate Finance – This entity is the top corporate finance advisor in Ireland. It serves public, private, semi-state, and commercial entities, both domestic and international. The fact that Davy Corporate Finance was a founding member of the IAIB (International Association of Investment Bankers) puts Davy in a strong position to offer clients global opportunities.
- Davy Global Fund Management – As a subsidiary of the Davy Company, Davy Global Fund Management has the experience, expertise, and reputation needed to attract and retain major clients from around the world. It currently manages approximately €16 billion in assets.
Other divisions and subsidiaries with interrelated missions include Davy Securities, Advance Fund Management Limited, Davy Fund Managers, and iCubed Training, Research and Consulting.
One of the most exciting developments for investors was the introduction of Davy Select. After decades of trading through personal advisors, Davy created a web-based self-directed option for those willing and able to choose their own trades.
Davy Select doesn’t offer the same sort of advisory services as other divisions of the company. Instead, it simply executes the trades placed by clients without comment.
This sort of service has become wildly popular over the past decade, as much of the data once only accessible by licensed professionals and industry experts has become easily accessible for all.
Many Davy Select clients – and clients of other execution-only services – are glad to do their own research and choose their own trades in exchange for a reduction in fees and commissions. But does Davy deliver?
Davy Pros and Cons
A quick look at the pros and cons of choosing Davy for your brokerage account:
- Largest brokerage firm in Ireland
- Execution-only accounts available
- Wide selection – more than 7,000 equities and 700 investment funds, including 330 ETFs, available
- Research accessible to self-directed investors
- Online and app-based trading available
- High per-trade costs, even for self-directed clients
- Do-it-yourself research for Davy Select
In other words, Davy has a lot going for it, but you will pay more for the additional features.
Where Davy Shines
As mentioned, the Davy Group is Ireland’s largest brokerage firm, which gives clients access to opportunities that smaller companies simply can’t offer.
Among other things, a Davy Select account allows you to trade more than 7,000 distinct equities, and you can purchase shares in over 700 investment funds. Nearly half of those are ETFs like the S&P 500 [SPY].
With Davy Select, you must do your own research and make your own decisions about what to trade and when, but Davy has developed a comprehensive selection of research tools and materials to make that easier.
In fact, Davy’s research tools have won awards for their quality and ease-of-use. Examples of available materials include up-to-the-minute articles and detailed videos that discuss areas of the world economy ranging from the transportation and leisure industries to the financial, pharmaceutical, and industrial sectors.
There are a number of advantages to trading with a major firm, and one of those is the fact that such firms have the cash and the motivation to invest in creating an exceptional consumer experience.
Nowhere is this more clear than with the web-based interface and mobile applications offered to Davy clients.
The platform is intuitive and user-friendly, allowing clients to trade, transfer funds, and create and monitor watchlists effortlessly.
Better still, the extensive FAQ section offers step-by-step instruction on completing each of these tasks for those who are new to the site or to trading in general.
Finally, Davy is a leader in customer care, even for self-directed clients – the ones often neglected by standard roboadvisor firms. Clients can reach knowledge professionals quickly by phone or email.
Where Davy Falls Short
The biggest drawback for Davy investors, even those who limit their interactions to execution-only, is the cost.
A comparatively high portion of your assets goes towards commissions and fees, which can diminish your earnings considerably. For example, you could pay as much as 1.9 percent or €1,900 for a €100,000 Irish equity transaction – a rate that many investors don’t consider reasonable, even when factoring in the quality research tools and materials available to Davy clients.
Those that choose Davy’s financial management often discover over time that they are unable to make any true progress towards building their wealth. Consider this scenario:
Davy charges as much as 2 percent when combining fees, commissions, and other miscellaneous costs. For one hypothetical client with a million euros invested, that roughly totals €20,000 annually. In the first year, returns are 8 percent or €80,000. Less €20,000 in fees, the client nets €60,000, which is a comfortable profit for the year.
In the second year, assume the market increases by 8 percent again, and Davy charges the same 2 percent. For the two-year period, the market has increased by 16 percent, and the client has gained approximately 12 percent or €120,000. So far, so good.
But what happens the next year when the market falls? When times are turbulent, a 10 percent drop is not unlikely. Even Warren Buffett’s Berkshire Hathaway [BRK.B] has fallen as much as 50% at various times in history.
The client’s portfolio loses €112,000, resulting in almost no profit after three years.
In other words, though the market increased by net 6 percent, the cost of Davy’s brokerage services eliminates gains. If the market drops again the following year, Davy continues to profit, while the client loses money.
Though at first glance, that 2 percent might appears inconsequential, it compounds over time significantly; much higher than some available alternatives – and the difference can lead to serious challenges when it comes to building wealth.
Davy Fees, Costs & Commissions
The best way to compare Davy’s fees, costs, and commissions to competing services is by breaking down the total to its underlying components.
This is a detailed example of charges one client paid from January 2018 – December 2018. The average portfolio value was €175,000.
Davy Stockbroker Review Summary
Total Service Costs and Exit Tax – 0.59 percent (€1,042)
Total Investment Product Costs – 2.66 percent (€4,669)
Total Fees and Charges – 3.25 percent (€5,711) – ouch!
Annual Davy Management Fee – 0.48 percent (€846)
VAT on Annual Davy Management Fee 0.11 percent (€194)
Management and Performance Fees – 1.39 percent (€2,443)
Incidental Costs – 1.27 percent (€2,226)
The Challenge of Investing in Europe
Davy Select is a strong offering from a strong company, but it often falls short in comparison to the low cost/no cost online brokers available in the United States. This is primarily due to an important distinction between the US and European marketplace.
The US stock market is relatively consolidated in that only Nasdaq offers any real competition to the New York Stock Exchange. European stock exchanges, on the other hand, remain quite fragmented.
Imagine, if you will, that each of the 50 US states had its own exchange. That scenario would be difficult to manage, and trading would be much costlier for investors. That’s the situation in Europe.
When considered alongside the fact that individual investing is less a part of the European culture, it’s plain to see why brokerages based in Europe – even those that are self-directed – tend to be more costly for investors than their US peers. The competition isn’t there, allowing firms like Davy to grow their own wealth at clients’ expense.
Is Davy Right for You?
The bottom line is this: Davy is good at what it does. In fact, it’s very, very good. But it is very expensive.
Once all of the fees and commissions for managed accounts are added together, they can top 2 percent per year. Those costs reduce the value of your portfolio over time. Many investors prefer to preserve their principal balance – and their profits – through no commission/no fee US brokers like tastyworks.
In the earlier scenario, it was clear that the 2 percent lost to Davy’s fees and commissions can dramatically reduce investors’ gains. Consider an alternative:
The same investor chooses a no commission/no fee US broker like tastyworks, then invests in an index fund that tracks the S&P 500. The first two years of gains, roughly €160,000, are retained by the investor. When the market drops by 10 percent in the third year, nearly €50,000 profit remains.
These calculations make the decision simple. There is questionable need for complex accounts, vast resources for researching individual securities, and costly financial advisory services.
Avoiding excessive fees and commissions is more important for building your wealth than trying to predict the next big winner. In truth, few managed accounts beat the market long-term, so saving money on commissions and fees can result in significant advantages for your portfolio over time.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.