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mrs fs conference presentation - The fall & rise of the direct investor - annotated

Consensus Research
Consensus Research

This document summarizes an interview discussing the growing market for direct consumer investment in the UK. Some key points: - The market for direct investments through platforms has grown to 贈65 billion in assets and involves around 6 million active investors. - Direct investors represent a diverse demographic, including many with incomes under 贈25,000. However, investing remains primarily a male activity. - Many direct investors still rely to some extent on financial advisors for guidance, and around half find investing confusing or do not enjoy it. - Competition in the consumer investment platform market is increasing after being dominated by Hargreaves Lansdown, presenting new opportunities.

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Good afternoon. Thanks for staying with us, right through to the bitter end. I do hope Lucian and I make it worth your while. Were going to talk to you for probably no longer than 15 minutes or so about the world of investing, specifically collective investments, risk-based investments. Were looking at how we see the world to be slowly waking up to the fact - or perhaps not as slowly as we might think actually that there is a very real and growing opportunity out there to go straight to the investor, straight to the money.
Lets be totally clear right up front about what we actually mean here, and why we think its worth 15 or so minutes of everyones time. Lucian will tell you a little more later on about how we get to this number, but we estimate theres approximately 6 million consumers who we might describe as active, direct investors. I mean they get their hands dirty, even if just a bit grubby. They might not all like to and more of that later as well but they invest off their own bat to some extent. Thinking just about direct to consumer investment platforms, we size assets under administration through the platforms at some 贈65 billion already. Its hardly chicken-feed. And remember these are risk-based investments. So we have stocks and shares ISAs, by far the most commonly held form of collective, but also OEICs, unit trusts, investment trusts and so on.
I actually sometimes wonder how this market has grown to the size that it has, given the almost complete lack of attention paid to the consumer over the years by the providers. This quote is taken from an interview I conducted with the UK MD of a top three global asset management company, one that is entirely typical of the industry. The presence and potential offered by going straight to the investor is plain to see and well recognised, but even then, almost nothing is done about it! The focus of attention has been purely and simply the intermediary. (REFER BACK TO PREVIOUS CHART) I mean, just look at these product names particularly impressive FLAs on display here! (Thats Four and Five Letter Acronyms, by the way ). And no Im not going to explain the ins and outs of SICAVs my French is not good enough for that.
Why then, are we interested in the consumer NOW? Whats changing? Well, theres so much changing, so many convergent macro-factors, its almost impossible to know where to start. Theres the relentless march of the internet and broadband, giving investors high-speed access to countless information sources. Theres a mountain of stats we could throw at you here - according to Ofcom, in 2009 UK consumers spent an average of 25 minutes surfing the net, compared to 9 in 2004 - according to the British Banking Association, every 10 minutes, 35,000 people use the internet to check their bank balance or statement online. In fact, in our Investment Funds Survey earlier this year, the proportion of active investors turning first to the internet for information on collectives, overtook those turning first to an intermediary. This is the first time in the 27 years of the study a real tipping-point in our view.
And that ease of access has bought with it a raft of brands that have become household names from the beloved meerkats (NO FS Conference is complete without a mention of the meerkats) to the deity that is Martin Lewis. Now Im not saying all these guys offer advice sorry, I mean information on SICAVs or any form of collective investment, but they are key in creating a feeling of familiarity and ease with hunting around ones self for the best offers on the market ..
And of course that growing feeling of familiarity sits very nicely with the initiatives outlined by Elaine earlier in the day, the devolution of responsibility to the individual from the state. From Mr Camerons Big Society, to PFEG, the All Party Parliamentary Committee on financial education for young people, to the sterling work of the Money Advice Service, the mantra is very clear and is seeping more and more into the public psyche. Apologies to the MRS and to Elaine for nicking the agenda entry, it just saved us searching for another new graphic
And another convergent factor that weve been hearing about earlier in the day, the impact of regulation, in particular the RDR. Just how the RDR is set to shake up the investment market is something on which pretty much every stakeholder has a view, but we certainly seem to be agreed that it is going to shake things up. One commonly held view is touched on here, another interview I conducted as part of our Investment Funds Survey. The suggestion is that the fee-driven model could potentially orphan sizeable numbers of smaller portfolio investors. In fact in an online survey of 16,000 IFAs conducted earlier this year by Dunstan Thomas, almost 70% of IFAs consider independent financial advice to the mass market to be unaffordable following the new qualification and training requirements demanded by RDR
And I dont really need to delve deep into the economic backdrop against which all of this is set. For those of us repaying mortgages, theres a clear upside. For those of us looking for good returns on our capital however, its not so bright. Were all looking around for something that can beat the unprecedented low interest rates on offer on the high street. And when youre paying for poor performance, we of course throw another factor into the pot. Perceived high charges, in tandem with poor returns, are doubtless two of the factors behind the drop in people using wealth managers and private banks.
And all of this creates real opportunity . Up to this point, Hargreaves Lansdown has not had a totally open road in the consumer platform market, but in truth it hasnt had a great deal of competition. This is starting to change however, and very quickly. Stronger competition is starting to emerge all the time, and the opportunity in the market is starting to be realised. Now over to the entire workforce of Lucian Camp Consulting to have a closer look at this market, what these investors actually look like and our vision for the future
One thing firmly on our side is that we are all perfectly familiar with active, direct investors . arent we? Im not sure about the bow-tie image here this is more James Bond than any type of investor I know but do we not all mentally picture the active investor as some studious boffin, immersed in the financial pages of the FT and various specialist magazines, or hunched over a laptop managing online variously structured portfolios. Even if theyre not doing this, they can easily be found on a Sunday at the Golf Club whilst the good lady prepares the Sunday roast. Well if we do believe this, we really should think again.
Point one to note is that this market is already substantial. We added some questions to a well-known consumer research omnibus that feeds us through a funnel of reasonably robust estimations: - around 55% of consumers today have some form of savings or investments - half of these, give or take, have what we might call a form of risk-based investment - half of these again, so around 13% of UK consumers all in all, are involved to some extent in these investments i.e. do not absolve all responsibility to a third party, an intermediary. That presents us with 6m people and an awful lot of invested or investable wealth.
So straightaway we can surmise that all 6 million are unlikely to be golf- playing, financial hobbyists, hanging on the every word of Motley Fool et al. In fact the active, direct investors paint a broad demographic canvas: - around 3 in 10 are under 45 years of age - a good proportion, 1 in 5, are social grades C2 DE, a further 3 in 10 classified C1 - so as you might expect, active investment is not the domain of the uber- wealthy: some 3 in 10 have a household income of 贈25,000 or less. What is true to some extent, though by no means exclusively, is that it remains a primarily male domain, to the tune of approximately 2:1.
But if we are to really understand active, direct investors, we need to look beyond the demographics, and for this we look to Consensus Investment Funds Survey. As much as these people do not devolve all responsibility for their risk- based investments to a third party, a good 3 in 5 continue to look to an adviser to one degree or another. This may be just for ratification that what theyre thinking of doing is not complete madness, or for advice that takes them further down the decision route whatever the extent, there is a whole spectrum of shades of grey in terms of self-direction
And, curiouser and curiouser, 1 in 2 direct investors do not get much pleasure from it or actually find it confusing and complicated. Even of those who take care of their own investments entirely, 1 in 4 claim to not get much pleasure from it. So we have a mind-set for an awful lot of investors that is not a million miles from how countless people probably think about their garden: they dont much enjoy the digging or weeding, or even the more pleasurable aspects of gardening, but get their hands grubby all the same, when they could feasibly pay someone else to do something they simply do not enjoy doing.
This means we have a substantial market on our hands, one that is demographically diverse and that views its own ability or desire to make decisions in many different ways. They are not the Wall St wannabe hobbyists, desperately trying to beat the market at all costs. In terms of who is looking after them nowadays, stockbroker-led platforms lead the way, holding some 3 in 5 customer accounts. IFA-led platforms, a la the Fidelity Funds Networks of this world, have 1 in 4 customer accounts. The behemoth in this arena however, is Hargreaves Lansdown, with a whopping 400,000+ customer accounts on the Vantage platform. On Consensus Investment Funds Survey, Hargreaves boasts an impressive 45% awareness across the entire active investor universe.
But what of the future? Well, it would be churlish to not point out first of all that there remains a huge opportunity for Hargreaves to just get bigger and bigger. Likewise the Selftrades and stocktrades of this world. They have a strong foothold now and surely this will only become stronger over time. But who else, who new? The banks, and how seriously they decide to take up the challenge, will surely be instrumental in defining how well active, direct investors are serviced in future years. And then theres the affinity groups. The Sagas and Asdas of this world can only continue to make strides into the world of financial services, taking advantage of their already extensive and diverse customer bases, and their well developed distribution channels.
If anyone is to take advantage of the opportunity however, the vagaries of the investor market need to be fully appreciated. In our view the answer is not the launching of any more Hargeaves Lansdown clones; as much as there is doubtless some opportunity here, it is not where the greatest potential lies. The gauntlet we would like to see picked up belongs to those millions of investors who are patently not hobbyists, who dont particularly enjoy being hands-on with their investments but who collectively have a lot of money in their pockets. So, be bold, research these people, segment them meaningfully and look to recruit a new customer base. Take advantage of the environmental macro-factors weve been discussing before someone else does.
If you require any information or assistance with any of your market research needs please get in touch. Thank you and goodbye

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mrs fs conference presentation - The fall & rise of the direct investor - annotated

  • 1. Good afternoon. Thanks for staying with us, right through to the bitter end. I do hope Lucian and I make it worth your while. Were going to talk to you for probably no longer than 15 minutes or so about the world of investing, specifically collective investments, risk-based investments. Were looking at how we see the world to be slowly waking up to the fact - or perhaps not as slowly as we might think actually that there is a very real and growing opportunity out there to go straight to the investor, straight to the money.
  • 2. Lets be totally clear right up front about what we actually mean here, and why we think its worth 15 or so minutes of everyones time. Lucian will tell you a little more later on about how we get to this number, but we estimate theres approximately 6 million consumers who we might describe as active, direct investors. I mean they get their hands dirty, even if just a bit grubby. They might not all like to and more of that later as well but they invest off their own bat to some extent. Thinking just about direct to consumer investment platforms, we size assets under administration through the platforms at some 贈65 billion already. Its hardly chicken-feed. And remember these are risk-based investments. So we have stocks and shares ISAs, by far the most commonly held form of collective, but also OEICs, unit trusts, investment trusts and so on.
  • 3. I actually sometimes wonder how this market has grown to the size that it has, given the almost complete lack of attention paid to the consumer over the years by the providers. This quote is taken from an interview I conducted with the UK MD of a top three global asset management company, one that is entirely typical of the industry. The presence and potential offered by going straight to the investor is plain to see and well recognised, but even then, almost nothing is done about it! The focus of attention has been purely and simply the intermediary. (REFER BACK TO PREVIOUS CHART) I mean, just look at these product names particularly impressive FLAs on display here! (Thats Four and Five Letter Acronyms, by the way ). And no Im not going to explain the ins and outs of SICAVs my French is not good enough for that.
  • 4. Why then, are we interested in the consumer NOW? Whats changing? Well, theres so much changing, so many convergent macro-factors, its almost impossible to know where to start. Theres the relentless march of the internet and broadband, giving investors high-speed access to countless information sources. Theres a mountain of stats we could throw at you here - according to Ofcom, in 2009 UK consumers spent an average of 25 minutes surfing the net, compared to 9 in 2004 - according to the British Banking Association, every 10 minutes, 35,000 people use the internet to check their bank balance or statement online. In fact, in our Investment Funds Survey earlier this year, the proportion of active investors turning first to the internet for information on collectives, overtook those turning first to an intermediary. This is the first time in the 27 years of the study a real tipping-point in our view.
  • 5. And that ease of access has bought with it a raft of brands that have become household names from the beloved meerkats (NO FS Conference is complete without a mention of the meerkats) to the deity that is Martin Lewis. Now Im not saying all these guys offer advice sorry, I mean information on SICAVs or any form of collective investment, but they are key in creating a feeling of familiarity and ease with hunting around ones self for the best offers on the market ..
  • 6. And of course that growing feeling of familiarity sits very nicely with the initiatives outlined by Elaine earlier in the day, the devolution of responsibility to the individual from the state. From Mr Camerons Big Society, to PFEG, the All Party Parliamentary Committee on financial education for young people, to the sterling work of the Money Advice Service, the mantra is very clear and is seeping more and more into the public psyche. Apologies to the MRS and to Elaine for nicking the agenda entry, it just saved us searching for another new graphic
  • 7. And another convergent factor that weve been hearing about earlier in the day, the impact of regulation, in particular the RDR. Just how the RDR is set to shake up the investment market is something on which pretty much every stakeholder has a view, but we certainly seem to be agreed that it is going to shake things up. One commonly held view is touched on here, another interview I conducted as part of our Investment Funds Survey. The suggestion is that the fee-driven model could potentially orphan sizeable numbers of smaller portfolio investors. In fact in an online survey of 16,000 IFAs conducted earlier this year by Dunstan Thomas, almost 70% of IFAs consider independent financial advice to the mass market to be unaffordable following the new qualification and training requirements demanded by RDR
  • 8. And I dont really need to delve deep into the economic backdrop against which all of this is set. For those of us repaying mortgages, theres a clear upside. For those of us looking for good returns on our capital however, its not so bright. Were all looking around for something that can beat the unprecedented low interest rates on offer on the high street. And when youre paying for poor performance, we of course throw another factor into the pot. Perceived high charges, in tandem with poor returns, are doubtless two of the factors behind the drop in people using wealth managers and private banks.
  • 9. And all of this creates real opportunity . Up to this point, Hargreaves Lansdown has not had a totally open road in the consumer platform market, but in truth it hasnt had a great deal of competition. This is starting to change however, and very quickly. Stronger competition is starting to emerge all the time, and the opportunity in the market is starting to be realised. Now over to the entire workforce of Lucian Camp Consulting to have a closer look at this market, what these investors actually look like and our vision for the future
  • 10. One thing firmly on our side is that we are all perfectly familiar with active, direct investors . arent we? Im not sure about the bow-tie image here this is more James Bond than any type of investor I know but do we not all mentally picture the active investor as some studious boffin, immersed in the financial pages of the FT and various specialist magazines, or hunched over a laptop managing online variously structured portfolios. Even if theyre not doing this, they can easily be found on a Sunday at the Golf Club whilst the good lady prepares the Sunday roast. Well if we do believe this, we really should think again.
  • 11. Point one to note is that this market is already substantial. We added some questions to a well-known consumer research omnibus that feeds us through a funnel of reasonably robust estimations: - around 55% of consumers today have some form of savings or investments - half of these, give or take, have what we might call a form of risk-based investment - half of these again, so around 13% of UK consumers all in all, are involved to some extent in these investments i.e. do not absolve all responsibility to a third party, an intermediary. That presents us with 6m people and an awful lot of invested or investable wealth.
  • 12. So straightaway we can surmise that all 6 million are unlikely to be golf- playing, financial hobbyists, hanging on the every word of Motley Fool et al. In fact the active, direct investors paint a broad demographic canvas: - around 3 in 10 are under 45 years of age - a good proportion, 1 in 5, are social grades C2 DE, a further 3 in 10 classified C1 - so as you might expect, active investment is not the domain of the uber- wealthy: some 3 in 10 have a household income of 贈25,000 or less. What is true to some extent, though by no means exclusively, is that it remains a primarily male domain, to the tune of approximately 2:1.
  • 13. But if we are to really understand active, direct investors, we need to look beyond the demographics, and for this we look to Consensus Investment Funds Survey. As much as these people do not devolve all responsibility for their risk- based investments to a third party, a good 3 in 5 continue to look to an adviser to one degree or another. This may be just for ratification that what theyre thinking of doing is not complete madness, or for advice that takes them further down the decision route whatever the extent, there is a whole spectrum of shades of grey in terms of self-direction
  • 14. And, curiouser and curiouser, 1 in 2 direct investors do not get much pleasure from it or actually find it confusing and complicated. Even of those who take care of their own investments entirely, 1 in 4 claim to not get much pleasure from it. So we have a mind-set for an awful lot of investors that is not a million miles from how countless people probably think about their garden: they dont much enjoy the digging or weeding, or even the more pleasurable aspects of gardening, but get their hands grubby all the same, when they could feasibly pay someone else to do something they simply do not enjoy doing.
  • 15. This means we have a substantial market on our hands, one that is demographically diverse and that views its own ability or desire to make decisions in many different ways. They are not the Wall St wannabe hobbyists, desperately trying to beat the market at all costs. In terms of who is looking after them nowadays, stockbroker-led platforms lead the way, holding some 3 in 5 customer accounts. IFA-led platforms, a la the Fidelity Funds Networks of this world, have 1 in 4 customer accounts. The behemoth in this arena however, is Hargreaves Lansdown, with a whopping 400,000+ customer accounts on the Vantage platform. On Consensus Investment Funds Survey, Hargreaves boasts an impressive 45% awareness across the entire active investor universe.
  • 16. But what of the future? Well, it would be churlish to not point out first of all that there remains a huge opportunity for Hargreaves to just get bigger and bigger. Likewise the Selftrades and stocktrades of this world. They have a strong foothold now and surely this will only become stronger over time. But who else, who new? The banks, and how seriously they decide to take up the challenge, will surely be instrumental in defining how well active, direct investors are serviced in future years. And then theres the affinity groups. The Sagas and Asdas of this world can only continue to make strides into the world of financial services, taking advantage of their already extensive and diverse customer bases, and their well developed distribution channels.
  • 17. If anyone is to take advantage of the opportunity however, the vagaries of the investor market need to be fully appreciated. In our view the answer is not the launching of any more Hargeaves Lansdown clones; as much as there is doubtless some opportunity here, it is not where the greatest potential lies. The gauntlet we would like to see picked up belongs to those millions of investors who are patently not hobbyists, who dont particularly enjoy being hands-on with their investments but who collectively have a lot of money in their pockets. So, be bold, research these people, segment them meaningfully and look to recruit a new customer base. Take advantage of the environmental macro-factors weve been discussing before someone else does.
  • 18. If you require any information or assistance with any of your market research needs please get in touch. Thank you and goodbye