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Sharedealing - UK - September 2010

The year 2009 was a much better one for stockbrokers, as it was for the whole retail investment industry. Demand for shares (and funds) picked up strongly during the year, with total trades transacted by stockbrokers up by around two fifths on 2008. Assets under management increased by more than a quarter, reflecting an improvement in global stock markets and renewed investor confidence.

However, during 2010 a fresh wave of volatility and uncertainty has set in. The recovery in the UK stock market that began in March 2009 ended in April 2010. During Q2 2010, equity prices tumbled, due to heightened concerns over sovereign debt levels in the eurozone and global growth prospects. Fears of a double-dip recession hitting the US and recent signs of softness in Asian economies have also unsettled investor nerves.

  • There has been a shift towards investment DIY, reflected by the increase in client numbers of execution-only stockbrokers in 2009.
  • The markets may be volatile, but retail activity picked up strongly in 2009 and this growth was maintained in 2010.
  • Over the last two to three years, the trading behaviour of retail clients has become increasingly sophisticated, as clients have more confidence investing at lower share prices, and selling higher to book short-term profits.
  • iPhone, and more recently the iPad, have established themselves as ‘devices of choice’ when it comes to mobile sharedealing services, whilst expectations grow as to the possible impact of Android. Trade sources see mobile services maturing at a rapid rate.
  • Just under one in ten (9%) plan to increase their equity-based holdings (eg by buying shares or funds). This is three times the proportion (3%) who plan to decrease their holdings (eg by selling shares or funds).
  • There is significant scope to grow penetration of sharedealing accounts, with just over half (54%) of those with savings or investments expressing interest in online execution-only sharedealing sites.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Market definitions
          • Abbreviations
          • Future Opportunities

            • Classifying investors by level of expertise
              • Reward the ‘frequent flyer’ trader with a points-based system
              • Market in Brief

                • Revenue growth continues into 2010
                  • High-volume execution-only sector versus high-value full service sector
                    • Growing DIY trend
                      • Macroeconomic and investment backdrop
                        • Regulatory developments
                          • Rival sectors and products
                            • Recent market innovation
                              • A highly concentrated market
                                • Distribution trends
                                  • Adspend falls slightly
                                    • The key findings of Mintel’s consumer research: equity ownership
                                      • Typical characteristics of the sharedealing customer
                                        • Sources used to buy and sell shares and other investments
                                          • Preferred features of online execution-only platforms
                                            • Investment plans over the coming year
                                            • Internal Market Environment

                                              • Key points
                                                • Investment conditions
                                                  • Stockmarket revival cut short by renewed volatility
                                                    • Figure 1: FTSE 100 and FTSE All Share – daily index movements, July 2001-July 2010
                                                  • Other asset classes also facing difficulties
                                                    • Significant reduction in the amounts traded since September 2008
                                                      • Figure 2: Value and volume of monthly order book trades – LSE, July 2007-July 2010
                                                    • Note: retail stockbroker trades bucked overall market trend
                                                      • Summary trading analysis
                                                        • Figure 3: LSE summary trading analysis, 2006-10
                                                      • Growing popularity of ETFs
                                                        • Investors remain cautious
                                                          • Figure 4: Intended equity buying and selling indices, Q3/Q4 2002-Q2/Q3 2010
                                                        • Regulatory overview
                                                          • New government, new banking reform
                                                            • CGT increase
                                                              • RDR proposals
                                                                • Platform changes
                                                                  • EU legislative directives
                                                                  • Broader Market Environment

                                                                    • Key points
                                                                      • Economic growth picks up
                                                                        • European debt crisis threatens UK recovery
                                                                          • Confidence remains in negative territory
                                                                            • Figure 5: GfK Consumer Confidence Barometer – UK, January 1988-August 2010
                                                                          • Savings ratio jumped to 7% in 2009
                                                                            • Figure 6: Total PDI, consumer expenditure and savings, at current and constant 2010 prices, 2006-13
                                                                          • Hedging against inflation
                                                                            • Figure 7: Average annual changes in the Bank of England base rate, CPI and RPI – UK, 2001-10
                                                                          • Could increases in interest rates shift asset allocation?
                                                                          • Competitive Context

                                                                            • Key points
                                                                              • Stockbroking forms part of the overall wealth management industry
                                                                                • Figure 8: Summary analysis of the wealth management market, by sector, 2009
                                                                              • Competition also comes from other financial sectors
                                                                                • Household-sector wealth rebounds in 2009
                                                                                  • Figure 9: Net worth of the household sector, 2005-09
                                                                                • Cash savings vehicles are preferred to equity-based investments
                                                                                  • Figure 10: Ownership of savings and investments, June 2010
                                                                                • ISA ownership continues to grow
                                                                                  • Value of stocks and shares ISA subscriptions best for nine years
                                                                                    • Figure 11: Number of ISAs and amounts subscribed, segmented by type, 1999/2000-2009/10
                                                                                  • Around £116 billion is held in stocks and shares ISAs
                                                                                    • Figure 12: Value of funds held in ISAs, 2005-09
                                                                                  • SIPPs are a niche product and are mostly held by the wealthy
                                                                                    • Figure 13: Volume and value of new SIPP business, 2005-09
                                                                                • SWOT Analysis

                                                                                    • Figure 14: UK sharedealing market – SWOT analysis, 2010
                                                                                • Who’s Innovating?

                                                                                  • Key points
                                                                                    • New packaged ETFs are set to emerge over the coming months
                                                                                      • Recent developments within the execution-only sector
                                                                                        • Recent initiatives by the LSE to improve access to financial markets for private investors
                                                                                        • Trade Perspective

                                                                                            • About the respondents
                                                                                              • RDR will improve transparency and encourage self-directed investment
                                                                                                • Little benefit to be gained from applying rebate ban to execution-only platforms
                                                                                                  • TERs should be improved to give a full indication of cost
                                                                                                    • Recent investor behaviour
                                                                                                      • New packaged ETFs are set to emerge
                                                                                                        • Investment outlook paints a confused picture
                                                                                                        • Market Size and Forecast

                                                                                                          • Key points
                                                                                                            • Revenues also increased
                                                                                                              • Figure 15: Total revenues by stockbroking firms, 2005-09
                                                                                                            • Execution-only firms benefit from shift towards DIY investment
                                                                                                              • Figure 16: Number of accounts/portfolios held with execution-only and full service stockbrokers, 2004-09
                                                                                                            • Stockbroker assets up by a third in 2009
                                                                                                              • Figure 17: Number of accounts and the value of assets managed by execution-only and full service stockbrokers, 2005-09
                                                                                                            • Commissions represent the largest revenue stream
                                                                                                              • Figure 18: Business revenue streams, 2008 and 2009
                                                                                                            • Profit margins improve in both sectors
                                                                                                              • Figure 19: Total costs as a proportion of total revenues, 2005-09
                                                                                                            • Market forecast
                                                                                                              • Figure 20: Forecast of total revenues by stockbroking firms, at current and constant prices, 2006-15
                                                                                                            • Factors incorporated
                                                                                                            • Portfolio Segmentation

                                                                                                              • Key points
                                                                                                                • Decline in full service sector accounts restricted to lowest value band
                                                                                                                  • Figure 21: Number of accounts/portfolios, by value band – nominee accounts only, 2009
                                                                                                                • Execution-only SIPP accounts almost double in number
                                                                                                                  • Figure 22: Number of execution-only accounts/portfolios, by type, 2009
                                                                                                                • Number of derivative accounts continues to grow
                                                                                                                  • Figure 23: Number of active spread bet and CFD accounts held by execution-only stockbrokers, Q1 2006-Q4 2009
                                                                                                              • Trading Activity

                                                                                                                • Key points
                                                                                                                  • Number of stockbroker trades increased by two fifths in 2009
                                                                                                                    • Figure 24: Number of stockbroker trades, by investment type, 2006-09
                                                                                                                  • 2009 peak trading occurred in Q2 and Q3
                                                                                                                    • Figure 25: Historical bargain volumes (shown on a quarterly basis), 1998-2009
                                                                                                                  • Most retail bargains are in UK equities
                                                                                                                    • Figure 26: Bargain volumes, by asset class, 2009
                                                                                                                • Market Share

                                                                                                                  • Key points
                                                                                                                    • Top five brokers in both sectors grew their share in 2009
                                                                                                                      • Figure 27: Share of total revenues by the five largest firms in each sector, 2006-09
                                                                                                                    • Most execution-only brokers experienced healthy revenue growth in 2009
                                                                                                                      • Figure 28: Total revenues for selected execution-only stockbrokers, 2008 and 2009
                                                                                                                  • Companies and Products

                                                                                                                      • Barclays Stockbrokers
                                                                                                                        • TD Waterhouse
                                                                                                                          • Halifax Share Dealing
                                                                                                                            • Selftrade
                                                                                                                              • The Share Centre
                                                                                                                                • Significant others
                                                                                                                                • Brand Communication and Promotion

                                                                                                                                  • Key points
                                                                                                                                    • Investment adspend increased in the year to May 2010
                                                                                                                                      • Figure 29: Total advertising expenditure on investment products and services, by product category, 2006-10
                                                                                                                                    • Spread betting firm City Index is the highest-spending advertiser
                                                                                                                                      • Figure 30: Top ten advertisers – stockbrokers and sharedealers only, 2008-10
                                                                                                                                    • Online advertising accounts for more than a quarter of total market adspend
                                                                                                                                      • Figure 31: Total advertising by stockbrokers and sharedealers, by media type, 2008-10
                                                                                                                                  • Channels to Market

                                                                                                                                    • Key points
                                                                                                                                      • The process of buying and selling shares
                                                                                                                                        • The discretionary management sector is the largest by assets
                                                                                                                                            • Figure 32: Stockbroker assets, by management channel, 2006-09
                                                                                                                                          • Online trading dominates the execution-only channel
                                                                                                                                            • Figure 33: Online trades as a percentage of execution-only trades, 2005-09
                                                                                                                                          • Full service broker trades more likely to be conducted offline
                                                                                                                                            • Passive versus active acquisition
                                                                                                                                            • The Consumer – Share Ownership

                                                                                                                                              • Key points
                                                                                                                                                • Survey background
                                                                                                                                                  • Just under one in ten internet users have a sharedealing account
                                                                                                                                                      • Figure 34: Ownership of savings and investments, June 2010
                                                                                                                                                    • Investor types
                                                                                                                                                        • Figure 35: Investor types, June 2010
                                                                                                                                                      • Over-55s are the key target group for sharedealing services
                                                                                                                                                        • Figure 36: Ownership of savings and investments, by age, June 2010
                                                                                                                                                      • Major gender discrepancy
                                                                                                                                                        • Figure 37: Ownership of savings and investments, by gender and socio-economic group, June 2010
                                                                                                                                                      • Investment portfolios become more diverse with income
                                                                                                                                                        • Figure 38: Ownership of savings and investments, by gross annual household income, June 2010
                                                                                                                                                      • Sharedealing account customers have the broadest portfolios
                                                                                                                                                        • Figure 39: Number of types of savings or investment product owned – total sample versus sharedealing account customers, June 2010
                                                                                                                                                    • The Consumer – Trading Sources Used

                                                                                                                                                      • Key points
                                                                                                                                                        • A bank or building society adviser is the top source for buying and selling shares
                                                                                                                                                            • Figure 40: Investment trading sources used, by how regularly, June 2010
                                                                                                                                                          • Investing directly versus via a pooled investment
                                                                                                                                                            • Over-55s are most likely to consult an IFA or traditional broker
                                                                                                                                                              • Figure 41: Investment trading sources used, by age, June 2010
                                                                                                                                                            • Men are more inclined towards self-directed trading
                                                                                                                                                              • Figure 42: Investment trading sources used, by gender and socio-economic group, June 2010
                                                                                                                                                            • Usage of all sources is highest among savers with household incomes of £50K+
                                                                                                                                                              • Figure 43: Investment trading sources used, by gross annual household income, June 2010
                                                                                                                                                            • Sharedealing account customers have used a range of trading sources
                                                                                                                                                              • Figure 44: Investment trading sources used, by type of investor, June 2010
                                                                                                                                                          • The Consumer – Preferred Features of Execution-only Platforms

                                                                                                                                                            • Key points
                                                                                                                                                              • People want low-cost, easy-to-navigate execution-only sharedealing sites
                                                                                                                                                                  • Figure 45: Preferred features of online sharedealing sites, June 2010
                                                                                                                                                                • Four in five sharedealing account customers look for a low fee per trade
                                                                                                                                                                  • Figure 46: Preferred features of online sharedealing sites, by ownership of savings and investments, June 2010
                                                                                                                                                                • There’s strong interest in online execution-only brokers among the 18-24 age group…
                                                                                                                                                                  • Figure 47: Preferred features of online sharedealing sites, by age, June 2010
                                                                                                                                                                • …as well as men, ABs and those with household incomes of £50,000+
                                                                                                                                                                  • Figure 48: Preferred features of online sharedealing sites, by gender and socio-economic group, June 2010
                                                                                                                                                                  • Figure 49: Preferred features of online sharedealing sites, by gross annual household income, June 2010
                                                                                                                                                              • The Consumer – Current Financial Situation

                                                                                                                                                                • Key points
                                                                                                                                                                  • Sharedealing customers tend to be in a better financial situation…
                                                                                                                                                                    • Figure 50: Current financial situation – equity-based investors and sharedealing account customers, June 2010
                                                                                                                                                                  • …but a fifth have been greatly affected by the economic downturn
                                                                                                                                                                    • Figure 51: Impact of the economic downturn – equity-based investors and sharedealing account customers, June 2010
                                                                                                                                                                  • Nearly two thirds of sharedealing customers have seen their savings income fall
                                                                                                                                                                    • Figure 52: Agreement with statements regarding income and the cost of living – equity-based investors and sharedealing account customers, June 2010
                                                                                                                                                                  • Just over one in ten sharedealing customers are really worried about their financial prospects
                                                                                                                                                                    • Figure 53: Consumer sentiment for the coming year in relation to their financial situation – equity-based investors and sharedealing account customers, June 2010
                                                                                                                                                                  • More than a quarter of sharedealing customers typically invest their spare cash
                                                                                                                                                                    • Figure 54: How choose to spend extra money – equity-based investors and sharedealing account customers, June 2010
                                                                                                                                                                • The Consumer – Investment Plans

                                                                                                                                                                  • Key points
                                                                                                                                                                    • One in four savers plan to increase their cash savings over the coming year
                                                                                                                                                                        • Figure 55: Investment intentions over next 12 months, by asset or investment type, June 2010
                                                                                                                                                                      • More people plan to buy shares or funds than sell them
                                                                                                                                                                        • Figure 56: Investment intentions over next 12 months, by asset or investment type (re-based), June 2010
                                                                                                                                                                    • Appendix – Ownership of Savings and Investments

                                                                                                                                                                        • Figure 57: Demographic profile of equity-based investors and sharedealing account customers versus the total sample, June 2010
                                                                                                                                                                        • Figure 58: Ownership of equity-based investments, by product type, by demographics, June 2010
                                                                                                                                                                        • Figure 59: Number of types of savings or investment product owned, by demographics, June 2010
                                                                                                                                                                    • Appendix – Equity Investment Intentions

                                                                                                                                                                        • Figure 60: Short-term intentions relating to equity investment, by demographics, June 2010

                                                                                                                                                                    Companies Covered

                                                                                                                                                                    • A J Bell Limited
                                                                                                                                                                    • Abbey
                                                                                                                                                                    • Asda Group Ltd
                                                                                                                                                                    • Association of British Insurers
                                                                                                                                                                    • Bank of England
                                                                                                                                                                    • Barclays Bank plc
                                                                                                                                                                    • BNP Paribas
                                                                                                                                                                    • Brewin Dolphin Holdings PLC
                                                                                                                                                                    • Capital Spreads
                                                                                                                                                                    • City Index
                                                                                                                                                                    • Co-operative Group
                                                                                                                                                                    • Facebook, Inc.
                                                                                                                                                                    • Financial Services Authority (The)
                                                                                                                                                                    • Gfk NOP
                                                                                                                                                                    • Government Actuary's Department (GAD)
                                                                                                                                                                    • Hargreaves Lansdown Plc
                                                                                                                                                                    • HSBC Private Bank (UK) Limited
                                                                                                                                                                    • International Monetary Fund
                                                                                                                                                                    • Investment Management Association
                                                                                                                                                                    • J. Sainsbury
                                                                                                                                                                    • Jarvis Investment Management plc
                                                                                                                                                                    • John Gilbert Financial Research
                                                                                                                                                                    • Lloyds Banking Group
                                                                                                                                                                    • Marks & Spencer
                                                                                                                                                                    • NatWest
                                                                                                                                                                    • Royal Bank of Scotland Group plc
                                                                                                                                                                    • Société Générale Group
                                                                                                                                                                    • T-Mobile (UK) Ltd
                                                                                                                                                                    • Talos Securities Ltd
                                                                                                                                                                    • TD Waterhouse
                                                                                                                                                                    • Toronto-Dominion Bank
                                                                                                                                                                    • Virgin Mobile
                                                                                                                                                                    • Vodafone Group Plc (UK)
                                                                                                                                                                    • Waitrose
                                                                                                                                                                    • Wills & Co Stockbrokers Ltd
                                                                                                                                                                    • Wm Morrison Supermarkets

                                                                                                                                                                    Sharedealing - UK - September 2010

                                                                                                                                                                    US $2,583.33 (Excl.Tax)