Sharedealing - UK - October 2009

Table of Contents

• Issues in the Market
• Key issues
• Abbreviations
• 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
• 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 -- 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
• 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 -- Sources of Investment Advice
  • Figure 57: Preferred sources of investment advice, by demographics, April 2009