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November 24, 2013 3:42 pm
Britain is increasingly becoming a nation of do-it-yourself investors, with assets managed by execution-only stockbrokers jumping by a fifth in the past nine months alone.
Funds under administration by execution-only brokers, which do not provide financial advice to clients, increased from £92bn at the end of last year to £110bn on September 30, according to research firm ComPeer.
“It’s not just small clients, it’s clients who have a lot of money and [are] choosing to manage their own affairs,” Tim May, chief executive of the Wealth Management Association, said
Mr May said that part of the increase in DIY investing was a result of regulations to encourage transparency in fees charged by investment managers.
The Retail Distribution Review, which forced financial advisers to take fees upfront from clients, rather than earning commission from companies whose products they sell, came into effect in January. It has exposed fees people paid for financial advice that they previously perceived to be free.
ComPeer said that a survey in October of 1,000 UK-based investors showed that half of the people polled said that they would probably invest without taking financial advice.
One of the biggest beneficiaries this year of a shift towards DIY investing has been Hargreaves Lansdown, the online investment platform with £39bn of assets under administration. The company reported record pre-tax profits of £195.2m for the 12 months to the end of June – a 28 per cent increase on the previous year.
“There were already people turning to DIY [investing] services before RDR came along...the effect of RDR has been to accelerate that trend,” said Danny Cox, head of financial planning at Hargreaves Lansdown.
“There’s a combination of a restriction of the supply of advice…and lots more people who have decided that, for whatever reason, they want to try to do all the investments themselves,” he said.
A loss of commission and tougher qualifications for independent financial advisers under RDR, has helped drive a decline in the number of financial advisers from 41,000 in 2011 to about 31,000, according to the Association of Professional Financial Advisers.
Mr Cox said the next generation of investors would increase the proportion of people willing to manage their own finances.
“[Look at] the numbers of younger people who use online services, smart phones, etcetera to transact everything from shopping to buying financial services. They are very much more of an online, DIY generation,” he said.
James Hamilton, an analyst at Numis Securities, said that RDR had made people consider DIY investing. “A lot of people have said, ‘OK I think I can [invest] myself and I’ll save myself the fee.’”
However, he said that a majority of the UK wealth management industry would probably remain advisory.
“Crudely speaking, in the UK [the investment market] is about 80 per cent advised and in the US it’s about 60 per cent, and I think we’ll move closer to that,” said Mr Hamilton.
He added: “There will always be a need for financial advice and wealth management.”
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