This week saw a flurry of dealmaking in the wealth management sector, where online fund supermarkets and even retail banks are slugging it out for a bigger share of the growing UK market for financial advice.
On Monday, DIY investment platform Interactive Investor bought smaller rival Alliance Trust Savings in a £40m deal that could result in lower prices for ATS customers.
Lloyds, meanwhile, announced a new partnership with asset manager Schroders in its bid to build up its financial planning business, which the banks had retreated from after the financial crisis.
Why has Interactive Investor bought Alliance Trust Savings?
Interactive Investor is currently the second-largest fund supermarket in the UK. Over the past two years it has grown tenfold in terms of assets under management, after a series of acquisitions.
This week, the company announced it was buying smaller rival Alliance Trust Savings, an investment platform with £16bn in assets under management and 110,000 customers on its books.
It is a sign that investment platforms and wealth managers are increasingly hungry for scale in a market facing downward pressure on prices and more burdensome regulation.
Interactive Investor wants to bring in new customers and build up assets rapidly in an increasingly competitive market, taking the fight to Hargreaves Lansdown, which enjoys a 40 per cent market share in the DIY investment market with more than £90bn in assets under management.
The ATS deal will give Interactive Investor a combined £35bn in assets under management and 300,000 customers. Unlike in previous deals, ATS customers pay similar flat fees to those levied by Interactive Investor, theoretically making the process smoother.
Interactive Investor was a relative minnow before a deal with TD Direct Investor handed it £14.5bn in assets, making it the second-largest platform in the UK.
Conversely, ATS has been up for sale for some time as its parent company Alliance Trust decided to focus on its global equity portfolio. The platform struggled with the integration of Stocktrade, which it bought in 2015, and suffered a £19.3m loss in 2016. That followed a £13.2m exceptional charge due to the writedown in the intangible value of the Stocktrade business. ATS returned to profit at its half-year point this year.
Is it good news for ATS customers?
It should be, as ATS customers could pay less. The deal is in its early stages, so clients will see no change immediately. But if it does go through, ATS customers will be moved to Interactive Investor’s pricing structure. Interactive Investor customers pay £22.50 every three months in administration fees (which customers earn back in trading credits), adding up to £90 a year. This compares with £120 annual fees paid by ATS customers.
The ATS fee includes four online trades a year, after which the company charges £9.99 per trade to buy and sell funds and stocks and shares. This falls to £1.50 per trade when customers commit to regular dealing via a direct debit.
Interactive Investor charges are similar at £10 to buy and sell (beneath a deal value of £100,000), falling to £1 for regular monthly investing. The company also has a greater choice of investments than ATS, particularly in international shares.
Holly Mackay, founder of consultancy Boring Money, said the deal would be good for ATS customers. “Alliance Trust Savings has been starved of investment for the last few years and everyone knew a sale was on the cards,” she said.
“It’s been a fairly bare bones proposition in that time so my sense is that for most customers it will be cheaper and they will benefit from investing in a business that is growing, so that’s quite a few boxes ticked.”
What’s hapening at Lloyds?
This week, Lloyds and Schroders announced a new joint venture to offer financial planning and investment services to wealthy customers in the latest sign that retail banks are returning to the financial advice market.
Under the deal, Schroders will look after £80bn worth of investments formerly managed by Standard Life Aberdeen. Lloyds and Schroders will also enter into a joint venture to “address the growing gap in the advice market through a personalised, advice-led proposition” for affluent customers.
But Lloyds said it was also working with Schroders potentially to offer “investment propositions and advice for Lloyds’ retail customers”, for which Schroders would provide active asset management services.
Why are banks are getting back into financial advice?
Lloyds was one of many high street lenders that moved away from offering financial advice following the financial crisis. But the growing demand for financial planning and investment help in the UK from, among others, a potentially lucrative pool of pensioners has led to a rush of banks looking to re-enter the market in recent months.
So far, banks have been more willing to consider offering investment services to their customers rather than face-to-face advice. Those include Royal Bank of Scotland, which launched an automated investment advice service late last year.
However, Santander restarted branch-based investment advice in 2016, offering personalised advice including tax planning and discretionary wealth management as well as offering investment funds to smaller savers.