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Collective Investments - UK - July 2015

The UK investment market performed strongly in 2014 and the first half of 2015. The gross value of retail sales of unit trusts and OEICs grew by 15% in 2014, while sales in Q1 2015 were 5% higher than the year before. This increase in value is expected to continue and Mintel forecasts the market to grow by 49% over the next five years, aided by a strong UK economy and the opportunities presented by the pension freedoms.

Jessica Morley, Financial Services Analyst

This report looks at the following areas:

  • The growing preference for passive management
  • The rise of the online investor
  • Investing for retirement and the move towards outcomes-based investing

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Table of contents

  1. Introduction

      • Product Definitions
        • Abbreviations
        • Executive Summary

            • The market
              • Continued market growth forecast
                • Figure 1: Forecast for gross retail sales of unit trusts and OEICs (UK-domiciled), 2010-20
              • Invesco Perpetual is the UK’s largest fund management firm…
                • …whilst St. James’s Place is the main provider of investment ISAs
                  • The consumer
                    • Low overall ownership dominated by company shares
                      • Figure 2: Ownership of investment products, April 2015
                    • Lower costs and the popularity of online platforms encourage passive investing
                      • Figure 3: Type of investment management used for most recently arranged investment product, April 2015
                    • Investors want collaboration not adviser dictation
                      • Figure 4: Attitudes towards investment approach, April 2015
                    • Enable investor engagement with their investments to stand out in a crowded market
                      • Figure 5: Agreement with the statement “I regularly check the performance of my investments”, April 2015
                    • Investment location prioritised by experienced investors
                      • Figure 6: Agreement with the statements “I would only consider investing if I understood all the details of an investment strategy” and “I would only consider investing if I knew which exact fund/markets my money would be invested in”, by ownership of investment products, April 2015
                    • Online-only channel remains niche
                      • Figure 7: Consumer attitudes towards online-only investment channels, April 2015
                    • Low risk tolerance is a barrier to investment uptake
                      • Figure 8: Consumer comfort with taking risks with savings, April 2015
                    • Brand building vital to competing effectively
                      • Figure 9: Agreement with the statement “I would only consider investing in a well-known brand”, by ownership of investment products, April 2015
                    • Reward referrals to attract new business
                      • Figure 10: Agreement with the statements “Friends/family/colleague recommendations are/would be important to me when making investment decisions” and “Information or tips from the media (e.g. financial press, newspaper articles etc.) are/would be important to me when making investment decisions”, by ownership of investment products, April 2015
                  • Issues and Insights

                    • The growing preference for passive management
                      • The facts
                        • The implications
                          • The rise of the online investor
                            • The facts
                              • The implications
                                • Investing for retirement and the move towards outcomes-based investing
                                  • The facts
                                    • The implications
                                    • The Market – What You Need to Know

                                      • Continued market growth forecast
                                        • Strong market performance boosts retail investment sales
                                          • Prioritisation of capital preservation favours fixed income over equity assets
                                            • Popularity of fund platforms means that intermediated sales dominate
                                              • Pension freedoms spell opportunity for investment market
                                              • Market Size and Forecast

                                                • Open-ended funds
                                                  • Growing economic optimism boosts value of OEIC and unit trust sales
                                                    • Figure 11: Value of retail sales of unit trusts and OEICs – UK-domiciled, 2010-14
                                                  • Closed-ended funds
                                                    • Unit trusts/OEICs see biggest year-on-year increase in new retail sales
                                                      • Figure 12: Volume of new regulated retail sales of investment trusts, unit trust/OEICs and stocks and shares ISAs, 2010-14
                                                    • 20% increase in value of investment trust assets under management
                                                      • Figure 13: Number of closed-ended investment companies and value of assets, 2013-15
                                                    • Market prospects as of June 2015
                                                      • Market forecast
                                                        • Figure 14: Forecast for gross retail sales of unit trusts and OEICs (UK-domiciled), 2010-20
                                                    • Market Segmentation

                                                      • Sales of property unit trusts and OEICs boom
                                                        • Figure 15: Net retail unit trust/OEIC sales (UK-domiciled), by asset class, 2010-14
                                                      • Strong growth in funds under management across asset classes
                                                        • Figure 16: Net retail unit trust/OEIC fund under management (UK-domiciled), by asset class, 2010-14 (year-end)
                                                    • Market Drivers

                                                      • The economy, stockmarket performance and investor behaviour
                                                        • Figure 17: Spending index, June 2012-March 2015
                                                      • The cost of money
                                                        • Differing prospects of higher earners and lower earners
                                                          • Figure 18: Comfort with taking financial risks, by annual household income, April 2015
                                                        • The retirement opportunity
                                                          • Figure 19: Pension pot usage plans of non-retired adults, June 2015
                                                          • Figure 20: Consumer plans for partial or complete pension pot drawdown, June 2015
                                                        • Regulatory environment
                                                        • Channels to Market

                                                          • Intermediaries dominate distribution sales
                                                            • Figure 21: Gross retail sales of unit trusts and OEICs, by distribution channel, 2010-14
                                                          • Fund platforms grow in popularity
                                                            • Figure 22: Share of gross retail unit trust and OEIC sales, by distribution channel, 2014
                                                          • Self-directed online platforms prove most popular channel amongst consumers
                                                            • Figure 23: Channels used to arrange most recent investment product purchase, April 2015
                                                          • Reliance on advisers increases with risk
                                                            • Figure 24: Channels used to arrange investments, by ownership of investment products investments, April 2015
                                                        • Key Players – What You Need to Know

                                                          • Invesco Perpetual is the UK’s largest fund management firm
                                                            • Competitive strategies
                                                              • ISA promotion boosts adspend
                                                              • Market Share

                                                                • Aberdeen acquisition results in significant increase in managed funds
                                                                  • Figure 25: Top 20 fund managers, by retail and private client funds under management (minimum lump sum is £50,000 or less), March 2013-March 2015
                                                                • Pension savers boost St. James’s Place ISA funds
                                                                  • Figure 26: Top 10 ISA fund managers, by ISA and PEP funds under management, March 2013-March 2015
                                                              • Competitive Strategies

                                                                • Developing multichannel platforms
                                                                  • Aviva launches direct-to-consumer investment platform…
                                                                    • …in direct competition with Hargreaves Lansdown…
                                                                      • …and Capital One
                                                                        • Building client-centric portfolios
                                                                          • Nutmeg does all the work
                                                                            • True Potential Investor guides within set boundaries
                                                                              • AXA’s Self Investor provides the most flexibility in involvement
                                                                                • Investing where it matters most
                                                                                  • Bnk to The Future lets the crowd back FinTech
                                                                                    • Columbia Threadneedle Investments focus on the Big Issues
                                                                                      • Deepening the relationship
                                                                                        • Henderson and Interactive Investor get the conversation flowing
                                                                                          • Capturing the retirement market
                                                                                            • Legal & General Investment Management focuses on funds
                                                                                              • Capital One gets calculative
                                                                                                • Columbia Threadneedle Investments goes digital
                                                                                                  • Focusing on innovation
                                                                                                  • Advertising Spend

                                                                                                    • Advertising expenditure on investment ISAs up 22% in year to April 2015
                                                                                                      • Figure 27: Above-the-line advertising expenditure on collective investments and investment ISAs, 2011-15
                                                                                                    • Pension freedoms drive up advertiser spend
                                                                                                      • Figure 28: Top 10 above-the-line advertisers of collective investments and investment ISAs, 2011-15
                                                                                                    • Press and direct mail prove to be favoured advertising channels
                                                                                                      • Figure 29: Above-the-line advertising expenditure on collective investments and investment ISAS, by media type, 2011-15
                                                                                                    • A note on adspend
                                                                                                    • The Consumer – What You Need to Know

                                                                                                      • Low overall ownership dominated by company shares
                                                                                                        • Lower costs and the popularity of online platforms encourage passive investing
                                                                                                          • Investors want collaboration not adviser dictation
                                                                                                            • Enable investor engagement with their investments to stand out in a crowded market
                                                                                                              • Investment location prioritised by experienced investors
                                                                                                                • Online-only channel remains niche
                                                                                                                  • Low risk tolerance is a barrier to investment uptake
                                                                                                                    • Brand building vital to competing effectively
                                                                                                                      • Reward referrals to attract new business
                                                                                                                      • Ownership of Investment Products

                                                                                                                        • Company shares dominate investment product ownership
                                                                                                                          • Figure 30: Current ownership levels of and consumer interest in investment products, April 2015
                                                                                                                        • Pension freedoms look set to boost investment trust ownership
                                                                                                                          • Company shares provide a door into the wider investment market…
                                                                                                                            • Figure 31: Repertoire of current ownership of any investment, April 2015
                                                                                                                          • …especially for under-represented groups
                                                                                                                            • High-net-worth investors have a broader reach
                                                                                                                              • Figure 32: Ownership of investment products, by value of savings and/or investments, April 2015
                                                                                                                            • Encouraging non-traditional investors
                                                                                                                            • Most Recently Arranged Investment Product

                                                                                                                              • Big brand sales boost investment in company shares
                                                                                                                                • Figure 33: Investment products most recently arranged, April 2015
                                                                                                                            • Active vs. Passive Investment Management

                                                                                                                              • Growing preference for passive management
                                                                                                                                • Figure 34: Type of investment management used for most recently arranged investment product, April 2015
                                                                                                                              • Adding value to active management
                                                                                                                                • Popularity of passive investing boosts ETF ownership
                                                                                                                                  • Figure 35: Investment products owned, by method used to manage most recently arranged investment product, April 2015
                                                                                                                              • Consumer Involvement in Investment Management

                                                                                                                                • The ‘DIY’ Investor
                                                                                                                                    • Figure 36: Attitudes towards investment approach, April 2015
                                                                                                                                  • Current investors more likely to see value of advisers
                                                                                                                                      • Figure 37: Attitudes towards investment approach, by ownership of investment products, April 2015
                                                                                                                                    • Collaboration is key
                                                                                                                                      • Higher-net-worth investors continue to rely on advisers
                                                                                                                                          • Figure 38: Attitude towards investment approach, by value of savings and investments, April 2015
                                                                                                                                      • Investor Oversight of Investment Performance

                                                                                                                                        • 75% regularly check their investment performance…
                                                                                                                                          • Figure 39: Investor approach to overseeing investment performance, April 2015
                                                                                                                                        • …but 22% are disengaged
                                                                                                                                          • Engaged investors more likely to be managing their investments actively
                                                                                                                                            • Figure 40: Agreement with the statement “I regularly check the performance of my investments”, by investment management method used for most recently arranged investment product, April 2015
                                                                                                                                        • Engagement with Investment Strategy

                                                                                                                                          • Strategic direction key to encouraging potential investments
                                                                                                                                            • Figure 41: Consumer attitudes towards investment strategy, April 2015
                                                                                                                                          • Importance of fund location increases with experience
                                                                                                                                            • Figure 42: Agreement with the statements “I would only consider investing if I understood all the details of an investment strategy” and “I would only consider investing if I knew which exact fund/markets my money would be invested in”, by ownership of investment products, April 2015
                                                                                                                                        • The Online Investor

                                                                                                                                          • Interactive online platforms
                                                                                                                                            • Figure 43: Consumer attitudes towards online-only investment channels, April 2015
                                                                                                                                          • Traditional channels could benefit from targeting new investors
                                                                                                                                            • Figure 44: Agreement with the statements “I would consider using an online investment platform that involves no face-to-face contact with an investment manager/financial adviser” and “I would consider using an online investment platform that doesn’t require the involve of an investment manager/financial adviser (e.g. self-manageable investments)”, by ownership of investment products, April 2015
                                                                                                                                            • Figure 45: Consumer comfort with taking risks with savings, by agreement with the statements “I would consider using an online investment platform that involves no face-to-face contact with an investment manager/financial adviser” and “I would consider using an online platform that doesn’t require the involvement of an investment manager/financial adviser”, April 2015
                                                                                                                                          • The opportunity to expand the online market
                                                                                                                                            • Figure 46: Agreement with the statement “I would consider using an online investment platform that doesn’t require the involvement of an investment manager/financial adviser”, by channels used to arrange an investment, April 2015
                                                                                                                                          • Identifying the niche
                                                                                                                                            • Figure 47: Agreement with the statement “I would consider using an online investment platform that doesn’t require the involvement of an investment manager/financial adviser”, by demographics, April 2015
                                                                                                                                        • Consumer Tolerance for Risky Investments

                                                                                                                                          • Industry transparency reduces risk tolerance
                                                                                                                                              • Figure 48: Consumer comfort with taking risks with savings, April 2015
                                                                                                                                            • Understanding and responding to variations in risk
                                                                                                                                              • The retirement risk
                                                                                                                                                  • Figure 49: Consumer tolerance to taking risks with savings, by ownership of investment products, April 2015
                                                                                                                                                • Encouraging the next generation of investors
                                                                                                                                                • The Influence of Brand and Fund Manager Reputation

                                                                                                                                                  • The importance of investing in brand building
                                                                                                                                                    • Figure 50: The influence of brand and fund manager reputation on consumer investment decisions, April 2015
                                                                                                                                                    • Figure 51: Ownership of investment products, by agreement with the statements “I would only consider investing in a well-known brand” and “I would only consider using a fund manager with a proven track record”, April 2015
                                                                                                                                                  • Personal brand is equally important
                                                                                                                                                  • Sources of Investment Advice

                                                                                                                                                    • The benefits of rewarding loyalty
                                                                                                                                                      • Figure 52: Sources of investment advice, April 2015
                                                                                                                                                      • Figure 53: Agreement with the statements “Friends/family/colleague recommendations are/would be important to me when making investment decisions” and “Information or tips from the media (e.g. financial press, newspaper articles etc.) are/would be important to me when making investment decisions”, by ownership of investment products, April 2015

                                                                                                                                                  Collective Investments - UK - July 2015

                                                                                                                                                  US $2,648.76 (Excl.Tax)