DIY finance lifts demand at no-advice brokers

Posted On — 13/08/2010

Source: Financial Times

Execution-only stockbrokers enjoyed increased account openings and record share-trading volumes last year while other wealth managers saw their numbers of client portfolios drop, in what is seen as a growing trend for financial DIY among investors.

Figures compiled by industry analyst ComPeer show that no-advice stockbrokers added 300,000 investor accounts last year as trading volumes returned to dotcom levels amid the stock markets rebound from its crisis lows.

However, private banks, full-service stockbrokers and investment managers all saw reductions in the number of client accounts, according to the analysts annual UK Wealth Management Industry report. Full-service stockbrokers saw the largest reduction in portfolio numbers of 6.8 per cent, against the 9.1 per cent increase at execution-only stockbrokers.

This could reflect a growing desire for financial DIY, said the report, as clients move from an advisory or discretionary approach of wealth managers to one where they make their own investment decisions.

The wealth management industry generally benefited from asset growth on the back of the stock markets recovery in 2009, and now holds in excess of 400bn of private client money.

Assets in self-invested personal pensions, which are favoured by DIY investors, saw particularly strong growth of 47.9 per cent to 21.7bn in 2009. Sipps remain a growth opportunity for firms, said ComPeer, helped by the demise of final salary pension schemes.

The stock markets recovery and volatility also prompted a near-50 per cent increase in private investor trades, with levels of buying and selling only seen once before, at the height of the dotcom boom, added ComPeer.

Execution-only stockbrokers accounted for the majority of private investor trades, with cash market transactions rising from 7.5m to 12.1m, and total trading volumes of 16.1m including spread bets and other instruments.

The report said that most execution-only stockbrokers had their strongest annual business performance yet in 2009 and the sector while highly competitive is expected to continue to prosper.

Average pre-tax profit margins among execution-only brokers rose to 33.7 per cent in 2009, compared with a drop in margins to 21.5 per cent at wealth managers.

Across the industry, overall profits fell 13.6 per cent, as the 0.5 per cent base rate squeezed firms income from client cash.