Andy Bell intends to “stir up trouble” for the big investment platforms that dominate the UK market, as he launched plans to capitalize on a generational shift among retail investors.
The entrepreneur, who started the AJ Bell funds supermarket in 1995, said platforms like his company’s retail department and his biggest rival Hargreaves Lansdown, which have dominated the market and generated profit margins large, are now facing a “disruption” of the challengers of low-cost mobile applications that appeal to young customers.
“We don’t want to wake up in 10 years and find out that these customers have gone elsewhere and we missed the boat,” Bell said in an interview with the FT.
That logic has led the company this week to make plans to launch a streamlined, commission-free investing app called Dodl early next year, which Bell hopes will reach “a younger audience” and people who have never invested before.
Despite the move to cut fees, Bell warned that a price race to the bottom in the retail brokerage market would hurt long-term investors if it led companies to become unsustainable.
“A lot of industries have short-term price wars. I don’t get the impression that’s what’s going on here, ”he said.
US retail brokers have slashed prices in recent years as low-cost challengers such as Robinhood have entered a race to offer commission-free trading. Leaders insist that a “no-cost” model is far from being established in the UK. Unlike the United States, brokers in the United Kingdom cannot receive payment from market makers in exchange for executing trades.
Dodl clients will pay an annual fee of 0.15% on their portfolios, but no trading fees. The price compares to 0.25% per annum on AJ Bell’s standard stock trading account, plus £ 9.95 per stock trade.
The rise of sophisticated trading platforms, especially in the United States, has raised concerns that these free apps may encourage over-trading. But Bell insisted the new app will not be aimed at “memestock traders”, in part because it will only execute trades once per day.
Bell was speaking on Thursday as the company announced its financial results for the year ending September. It saw a 13% increase in its pre-tax profits due to record customer and asset growth, spurred by “forced savings” and the extra free time its customers have to invest during market lockdowns. Covid-19. However, shares of the FTSE 250 group ended the day down 8% as investors waved away from the rising cost of investing in technology.
Responding to concerns that offering a discount option could undermine AJ Bell’s primary direct-to-consumer platform, Youinvest, Bell said, “We’d rather disrupt our own market than be disturbed. ”
The average age of new Youinvest clients is 39, said Bell, slightly younger than existing clients at 44.
But the Dodl plan comes as competition for savings from small investors intensifies. AJ Bell’s rival Interactive Investor finalized its acquisition by asset manager Abrdn on Thursday.
“What we look forward to from Abrdn – beyond the benefit of being part of a financially strong FTSE 100 company – is that they have advisory, research and wealth management services. of which we would benefit from having more, ”said Richard Wilson, Director of Interactive Investor. executive.
Interactive Investor made its own game of signing up members of the younger generation last month when it announced that, for a monthly fee of £ 5, clients will be able to donate up to five ‘friends and family’ accounts, allowing new hires to buy stocks and funds as well as open tax-sheltered investment vehicles.
Rival start-ups have also gained ground. Freetrade, which recently topped £ 1bn in assets, is looking to double its valuation to £ 650m in a new round that will give it more cash to invest in growth. Like Dodl, the app doesn’t charge any upfront fees. Instead, it earns income from currency exchange fees and a premium monthly subscription service.
As the increase in customer registrations and business activity has slowed since the end of the UK lockdowns, Bell was optimistic about the industry’s growth: “While next year is quieter than this year, but that long term growth is in the right direction, I will not lose sleep over it.