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Sharedealing - UK - October 2009

  • Over 10 million consumers identify friends and family as an important source of investment related advice. Offering existing clients free trades or extra cash to refer new clients could help boost Sharedealing provider’s revenues.
  • Despite the progressive decline in the cost of trading it appears that costs need to be lowered even further to encourage more people, particularly those from younger age groups, to invest in the stockmarket. The equivalent of 13 million potential investors still identify the lack of affordability as a key issue preventing them from investing in the stockmarket.
  • Independent stockbroking firms could be working more closely with banks and building societies to increase account numbers and gain a high street presence. This way relevant banks and building societies can focus on their core business instead of wasting resources on uncompetitive sharedealing services.
  • Of the 5.36 million people who reported they own individual shares over half are likely to have acquired them via the demutualization of building society. There may be opportunities to get these so called ‘passive’ shareholders to become more active investors.
  • The potential for a long-term slow growth environment on the stockmarket will make picking winning shares more difficult but should also increase demand for advice. Full service brokers and other intermediaries that can help clients identify the winners in a tough market are likely to prosper.
  • Over the past few years there has been a significant rise in so called ‘Social-investing’ websites which aim to create an online information community for retail investors. Incorporating an element of social-networking into a brokerage’s product offering, like Zecco.com has done in the US, could help encourage more young people to open accounts.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Offering free trades for new client referrals can help expand business
            • ‘Social investing’ and the ego boost for skilled traders
              • Independent brokerage firms could be working more closely with banks
                • Spreadbetting offers instant gratification or long term pain
                • Market in Brief

                  • Rise in spread betting helps XO brokers increase account numbers
                    • Spread betting trade volumes up by 60% as of Q1 2009
                      • Figure 1: Execution only stockbroker trading volumes, by type, 2000-08
                    • Majority of XO trades conducted online
                      • Stockbroker revenues coming under pressure
                        • Stock market performance has improved recently but questions persist
                          • Figure 2: FTSE 100 and FTSE All Share – daily index movements, August 2003-August 2009
                        • Internal market environment
                          • Stock market malaise leads to drop in sharedealing adspend
                            • US innovations making their way to the UK
                              • Collective investment funds key alternative to direct share ownership
                                • Key consumer research findings
                                  • Investment ownership
                                    • Attitudes towards risk
                                      • Sources of investment advice
                                      • Internal Market Environment

                                        • Key points
                                          • Value of shares owned by retail investors falls to £75 billion in Q1 2009
                                            • Figure 3: Total value of UK quoted shares by owner, 2003-09 Q1
                                          • Retail investor exodus from direct share holding is not new
                                            • Efficient cost control by brokerages pushes down the price of trading
                                              • Figure 4: XO commission per trade and cost per trade, 200-08
                                            • Spread betting could lose out from lower volatility
                                              • Bad debts posing problems for spreadbetting firms
                                                • Investor context
                                                  • Most investors only willing to take on minimal risk
                                                    • Figure 5: Attitudes towards risk, April 2009
                                                  • Lack of available funds and understanding also top barriers
                                                    • Figure 6: Barriers to buying shares or other stockmarket-based investments, April 2009
                                                  • Investor sentiment recovering but delicate
                                                    • Figure 7: Intended purchases of shares and equity-based unit trusts, government and corporate bonds and bond-based unit trusts and sales of equities and unit trusts, Q3/Q4 2002-Q3/Q4 2009
                                                  • Regulatory environment
                                                    • Full Service brokerages will be affected by the RDR
                                                      • General election result could delay the full implementation of the RDR
                                                        • New CGT regime favours high net worth investors focused on growth
                                                          • Individual shares represent 14% of assets held in stocks and share ISAs
                                                            • Figure 8: Market value of ISA funds, stocks and shares component, as of 5 April 2008, by type of qualifying investment, 2004-08
                                                          • Still complaints about dividends and ISAs
                                                            • Dividend tax credit must be restored to make ISAs completely tax-free
                                                              • MiFID’s positive impact at the upper end of advice market
                                                              • Broader Market Environment

                                                                • Key points
                                                                  • Stock market performance has improved but questions remain
                                                                    • Figure 9: FTSE 100 and FTSE All Share – daily index movements, August 2003-August 2009
                                                                  • Low growth environment looks likely but still presents opportunities
                                                                    • Record low base rate will cause some to seek higher returns elsewhere
                                                                      • Figure 10: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK, August 2005-August 2009
                                                                    • Low inflation will free up funds for certain individuals…
                                                                      • …but it is never too early to worry about inflation
                                                                        • Demographic trends bode well for an expansion of key target market
                                                                          • Figure 11: Socio-demographic composition of United Kingdom population, 1994-2014
                                                                        • Increasing internet penetration has revolutionised trading
                                                                          • Figure 12: British internet penetration at home/work/place of study or elsewhere, April 2002-January 2009
                                                                      • Competitive Context

                                                                        • Key points
                                                                          • Investment alternatives
                                                                            • Figure 13: Penetration of savings and investment products, April 2009
                                                                          • Collective investment funds the key retail investment alternative
                                                                            • Figure 14: Retail sales of unit trusts and OEICs by IMA members, 1999-2009
                                                                          • Cash ISA subscriptions rise as stocks and share ISA subscriptions drop
                                                                            • Figure 15: Number of ISA accounts and amounts subscribed, segmented by type, 1999/2000-2008/09
                                                                          • NS&I has experienced strong growth during crisis
                                                                            • Figure 16: Amounts invested in NS&I annually and total funds held, 2003/04-2008/09
                                                                          • Personal pensions compete for retail investor funds
                                                                            • Figure 17: New APE* individual pension premiums, by product type, 2003-08
                                                                          • Many still aspire to invest in property
                                                                          • Strengths and Weaknesses in the Market

                                                                              • Figure 18: Sharedealing and online investing – SWOT analysis, 2009
                                                                          • Who’s Innovating?

                                                                            • Key points
                                                                              • ‘Social-investing’ is starting to take off
                                                                                • Cake financial
                                                                                  • Covestor
                                                                                    • kaChing
                                                                                      • Motley Fool CAPS
                                                                                        • SocialPicks
                                                                                          • Wikinvest
                                                                                            • ZeccoShare
                                                                                              • Other recent innovations/developments
                                                                                                • Twitter enabled stock trading via PollyTrade
                                                                                                  • Fin-buzz tool tracks FTSE 100 share prices against sentiment
                                                                                                    • Direct Market Access
                                                                                                    • Market Size and Forecast

                                                                                                      • Key points
                                                                                                        • Full service and execution only broker revenues coming under pressure
                                                                                                          • Figure 19: Total revenue for execution only and full service stockbrokers, 2003-08
                                                                                                        • Proportion of revenue generated from commission on the decline
                                                                                                          • Figure 20: Proportion of revenue, by firm type and stream, 2007-08
                                                                                                        • Value of assets held with stockbrokers down by 25% in 2008…
                                                                                                          • Figure 21: Value of investment assets for wealth managers and execution only stockbrokers, 2002-08
                                                                                                        • …but execution-only brokers continue to increase account numbers
                                                                                                          • Figure 22: Number of portfolios, by firm type, 2003-08
                                                                                                        • Nominee XO accounts drive growth in new accounts
                                                                                                          • Figure 23: Number of execution only accounts, by account type, 2003-08
                                                                                                        • Forecast
                                                                                                          • Steady growth in revenue expected as asset prices recover
                                                                                                            • Figure 24: Forecast of total revenue for execution only and full service stockbrokers, 2004-14
                                                                                                          • Factors incorporated
                                                                                                          • Market Segmentation

                                                                                                            • Key points
                                                                                                              • Most growth coming from accounts valued under £50K
                                                                                                                • Figure 25: Number of nominee* portfolios by firm type and size, 2008
                                                                                                              • Average execution only account size falls to £14K in 2008
                                                                                                                • Figure 26: Number of nominee* accounts and total value of assets, by size of portfolio for execution only stockbrokers, 2008
                                                                                                              • Strong growth in CFD and spread betting accounts
                                                                                                                • Figure 27: Number of execution only CFD and Spread betting accounts, Q1 2006-Q1 2009
                                                                                                            • Trading Activity

                                                                                                              • Key points
                                                                                                                • Broker trade volumes
                                                                                                                  • Execution only stockbroker trading volumes
                                                                                                                    • Figure 28: Execution only stockbroker trading volumes, by type, 2000-08
                                                                                                                  • Full service stockbroker trading volumes
                                                                                                                    • Figure 29: Full service stockbroker trading volumes, by type, 2000-08
                                                                                                                • Companies and Products

                                                                                                                  • Top five execution only brokers account for 68% of total revenues
                                                                                                                    • Figure 30: Market share of total revenue for top five firms, by investment firm type, 2005-08
                                                                                                                  • Select execution only broker company profiles
                                                                                                                    • Barclays Stockbrokers
                                                                                                                      • Halifax Share Dealing
                                                                                                                        • Interactive Investor
                                                                                                                          • Selftrade
                                                                                                                            • TD Waterhouse
                                                                                                                              • Key Spreadbetting firms
                                                                                                                                • Capital Spreads
                                                                                                                                  • City Index
                                                                                                                                    • CMC Markets
                                                                                                                                      • Finspreads
                                                                                                                                        • IG Index
                                                                                                                                        • Brand Communication and Promotion

                                                                                                                                          • Key points
                                                                                                                                            • Sharedealing related adspend falls by nearly a third
                                                                                                                                              • Figure 31: Advertising expenditure on sharedealing and other investment services, by sub-category, 2005-09
                                                                                                                                            • Top ten advertisers increase adspend
                                                                                                                                              • Figure 32: Advertising expenditure on sharedealing and other investment services, by top ten advertisers, 2008 and 2009
                                                                                                                                            • Press and direct mail account for most adspend
                                                                                                                                              • Figure 33: Advertising expenditure on sharedealing and other investment services, by top ten advertisers, 2008 and 2009
                                                                                                                                          • Channels to Market

                                                                                                                                            • Key points
                                                                                                                                              • Three quarters of all execution only trades conducted online
                                                                                                                                                • Figure 34: Proportion of execution only trades made through external client traders, by channel, 1998-2008
                                                                                                                                              • Trades with full service brokers more likely to be conducted offline
                                                                                                                                                • Other ways individuals may have acquired shares
                                                                                                                                                • The Consumer – Investment Ownership

                                                                                                                                                  • Key points
                                                                                                                                                    • One in nine report owning individual company shares
                                                                                                                                                        • Figure 35: Investment ownership, April 2009
                                                                                                                                                      • Many have obtained shares through demutualisation
                                                                                                                                                        • Significant rise in share ownership after 35
                                                                                                                                                          • Figure 36: Savings and investment products owned, by age, April 2009
                                                                                                                                                        • ABs twice as likely than overall population to own individual shares
                                                                                                                                                          • Figure 37: Savings and investment products owned, by gender and socio-economic group, April 2009
                                                                                                                                                        • Wealth the central factor in investment ownership
                                                                                                                                                          • Figure 38: Savings and investment products owned, by level of investible assets, April 2009
                                                                                                                                                      • The Consumer – Attitudes Towards Risk

                                                                                                                                                        • Key points
                                                                                                                                                          • Very few display the risk tolerance necessary for sharedealing
                                                                                                                                                            • Figure 39: Attitudes towards risk, April 2009
                                                                                                                                                          • No point in marketing sharedealing to those who can’t handle any risk
                                                                                                                                                            • Risk tolerance consistent with product ownership
                                                                                                                                                              • Figure 40: Product ownership, by attitudes towards risk, April 2009
                                                                                                                                                            • Some investors appear unaware of their risk exposure
                                                                                                                                                              • Risk appetite decreases with age
                                                                                                                                                                • Figure 41: Attitudes towards risk, by gender and age, April 2009
                                                                                                                                                              • Still plenty of room to cut the cost of investing in shares
                                                                                                                                                                • Commission free spread betting an option for real risk takers
                                                                                                                                                                  • Higher risk tolerance levels among the affluent
                                                                                                                                                                    • Figure 42: Attitudes towards risk, by socio-economic group and gross annual household income, April 2009
                                                                                                                                                                • The Consumer – Sources of Investment Advice

                                                                                                                                                                  • Key points
                                                                                                                                                                    • Banks, building societies and IFAs the key sources of advice
                                                                                                                                                                        • Figure 43: Source of investment advice, April 2009
                                                                                                                                                                      • Banks offering sharedealing services are very well placed
                                                                                                                                                                        • Offering free trades for referrals can help expand business
                                                                                                                                                                          • Professionals the main sources of advice for individual investors
                                                                                                                                                                            • Figure 44: Product ownership, by source of investment advice, April 2009
                                                                                                                                                                          • True risk takers doing their own research online and offline
                                                                                                                                                                            • Figure 45: Sources of investment advice, by attitudes towards risk, April 2009
                                                                                                                                                                          • Influence of friends and family strongest among younger investors
                                                                                                                                                                            • Figure 46: Source of investment advice, by gender and age, April 2009
                                                                                                                                                                          • The internet’s rising influence
                                                                                                                                                                            • Affluent value advice from professionals and friends and family
                                                                                                                                                                              • Figure 47: Source of investment advice, by socio-economic group and gross annual household income, April 2009
                                                                                                                                                                          • The Consumer – Targeting Opportunities

                                                                                                                                                                            • Key points
                                                                                                                                                                              • Key target groups
                                                                                                                                                                                • Figure 48: Long-term saving and investing target groups, April 2009
                                                                                                                                                                              • No Room for Risk
                                                                                                                                                                                • Short of Funds
                                                                                                                                                                                  • Apt Investors
                                                                                                                                                                                    • Not Interested
                                                                                                                                                                                      • Apt Investors natural target for sharedealing services
                                                                                                                                                                                        • Figure 49: Target groups, by product ownership, April 2009
                                                                                                                                                                                      • Target group risk tolerance levels
                                                                                                                                                                                        • Figure 50: Target groups, by attitudes towards risk, April 2009
                                                                                                                                                                                      • Apt investors use a variety of sources but still value professional advice
                                                                                                                                                                                        • Figure 51: Target groups, by source of investment advice, April 2009
                                                                                                                                                                                      • Apt investors also tend to high-earners
                                                                                                                                                                                        • Figure 52: Target group, by demographics, April 2009
                                                                                                                                                                                    • Appendix – Market Background and Definitions

                                                                                                                                                                                        • Investment risk
                                                                                                                                                                                          • Figure 53: Risk profile of selected savings and investments
                                                                                                                                                                                        • Stocks and shares and related assets
                                                                                                                                                                                          • Tax-related concepts and products
                                                                                                                                                                                            • Financial products and investment vehicles
                                                                                                                                                                                            • Appendix – The Consumer – Investment Ownership

                                                                                                                                                                                                • Figure 54: Most popular ownership of select savings and investment products, by demographics, April 2009
                                                                                                                                                                                                • Figure 55: Next most popular ownership of select savings and investment products, by demographics, April 2009 (continued)
                                                                                                                                                                                            • Appendix – The Consumer – Attitudes Towards Risk

                                                                                                                                                                                                • Figure 56: Attitudes towards risk, by demographics, April 2009
                                                                                                                                                                                            • Appendix – The Consumer – Sources of Investment Advice

                                                                                                                                                                                                • Figure 57: Preferred sources of investment advice, by demographics, April 2009
                                                                                                                                                                                            • Appendix – The Consumer – Targeting Opportunities

                                                                                                                                                                                                • Figure 58: Target group, by demographics, April 2009

                                                                                                                                                                                            Companies Covered

                                                                                                                                                                                            • Alliance & Leicester
                                                                                                                                                                                            • Asda Group Ltd
                                                                                                                                                                                            • Bank of England
                                                                                                                                                                                            • Barclays Global Investors
                                                                                                                                                                                            • Co-operative Group
                                                                                                                                                                                            • Council of Mortgage Lenders
                                                                                                                                                                                            • DDB London Ltd
                                                                                                                                                                                            • Debt Management Office (DMO)
                                                                                                                                                                                            • Facebook, Inc.
                                                                                                                                                                                            • Financial Services Authority (The)
                                                                                                                                                                                            • Gfk NOP
                                                                                                                                                                                            • Grupo Santander Central Hispano S.A.
                                                                                                                                                                                            • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                            • Investment Management Association
                                                                                                                                                                                            • Lehman Brothers [UK]
                                                                                                                                                                                            • Lloyds Banking Group
                                                                                                                                                                                            • Office for National Statistics
                                                                                                                                                                                            • Prudential plc
                                                                                                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                                                                                                            • Société Générale Group
                                                                                                                                                                                            • Talos Securities Ltd
                                                                                                                                                                                            • Toronto-Dominion Bank
                                                                                                                                                                                            • Twitter, Inc.
                                                                                                                                                                                            • Wills & Co Stockbrokers Ltd

                                                                                                                                                                                            Sharedealing - UK - October 2009

                                                                                                                                                                                            £1,995.00 (Excl.Tax)