More than 9mn people have at least £10,000 in investable assets, but hold most or all of it in cash, according to the Financial Conduct Authority. Nevertheless, more than two-fifths had some appetite to take investment risk — and it seems that providers are taking notice too.
The end of January saw M&G Wealth launch digital investment service “&me” in partnership with Moneyfarm, an app that enables users to invest in active and passive funds, or exchange traded funds.
M&G’s app comes less than a year after AJ Bell launched “Dodl” in April 2022, in a bid to make investing easier and accessible via what the fund platform describes as a “no-nonsense” app.
While some have gone down the development route, others have acquired. JPMorgan Chase, for example, acquired digital wealth manager Nutmeg in 2021, a year after Wealthify became a wholly owned subsidiary of Aviva.
Large bancassurers are partnering with or acquiring smaller fintechs… it’s a match made in financial services heavenBella Caridade-Ferreira, FundscapeSo what factors have been driving activity in the direct-to-consumer investment market over the past few years?
“The Retail Distribution Review made it difficult for large financial providers to provide large-scale, cost-effective advice and investment solutions,” says Bella Caridade-Ferreira, chief executive of research house Fundscape.
“The reason large bancassurers are partnering with or acquiring smaller fintechs, is because it’s a match made in financial services heaven. The bancassurers have the captive client audiences but don’t have the technology; and the fintechs have the technology but don’t have the captive client bases.”
D2C activity “exploded” in 2020, adds Caridade-Ferreira, and although it has subsided, it is still higher than before the pandemic.
“Lockdowns helped [show] younger generations just how precarious their situations were with no savings to fall back on. They began to engage during lockdown, and the engagement has remained high.
“However, with no one to advise or hold their hand when the going gets tough, D2C investors can often panic or make the wrong decisions in adverse market conditions.”
Three-quarters of consumers indicate they would not be comfortable deciding where they invest (72 per cent) or managing their investments (73 per cent) without support from an expert or other guidanceFCA Consumer Investments Strategy – 1 year update (2022)
Indeed, M&G highlights how users of its investing app can contact an “&me consultant” through the app for guidance and to increase their confidence in investing.
As M&G Wealth’s managing director David Montgomery put it, not everyone wants, or can afford, to take full advice. “We want to enable more people to save and invest for the financial future they want and dream of,” he says.
While describing the advice gap as an “old topic”, Jeremy Fawcett, head of research consultancy Platforum, says: “I wonder if we’re beginning to look at [the advice gap] in a slightly different way.
“The old way was, ‘everyone needs financial advice, and how do we make it available to people who maybe can’t afford to pay for an ongoing relationship with a financial adviser?’
“And I think these days we’re thinking about it in a slightly different way. There are different ways of serving different types of customers, and there are different services that are suitable for different types of customers.”
Altus Consulting investments director Ben Hammond says: “People talk a lot about the advice gap and what RDR has ‘caused’. Whatever you believe, there is an obvious gap in customer understanding and financial literacy, so there’s a definite opportunity for suppliers.
“But a lot of it — especially with consumer duty coming up for example, but everything around ‘treating customers fairly’ has been around for years — is about serving those customers and actually providing them a solution.
“I think there’s a definite commercial opportunity, because there’s a bunch of people there who are either saving just in cash, and that’s not always the right thing to do, but they haven’t got enough in the way of income or savings to warrant paying for a bit more advice.”
2020 | 2022 | |
Proportion of adults with at least £10,000 investable assets, holding most/all in cash | 55% (8.4mn) | 58% (9.7mn) |
Source: FCA Consumer Investments Strategy – 1 year update | ||
Hammond adds: “I think there’s quite a lot of firms thinking, ‘there’s a definite opportunity, we need something to serve — [it] could be existing customers, because a big insurance company like Aviva has got millions of customers just buying life insurance, car insurance’.
“Ultimately, it’s about serving the customer and trying to help them invest for the longer term, for the future, for their retirement, and everything else.”
A growing customer base
Also highlighting the number of customers is Holly Mackay, chief executive of Boring Money, a financial education website and research provider.
“Customer numbers are higher than they’ve been ever before. DIY investors rose exponentially throughout the pandemic, and then again in 2021,” she says.
“Growth slowed a little last year, but there’s more than 10mn DIY investor accounts now. There are more investors in the UK who are self-directed than we’ve ever had before, so it’s a growing audience.”
Besides the number of DIY investors, Mackay cites regulatory initiatives against the advice gap. “If you listen to the mood music coming from the regulator, there’s thinking going on about guidance, hybrid advice, digital advice, simplified advice,” she says.
“We size the advice gap at just over 13mn people. So that’s people saying, ‘I would invest or I do invest, but I’m not confident, I’d like some help with that’.”
Advisers will get queries from people they think they can’t service, so being able to refer people to these types of services is an entirely positive thingHolly Mackay, Boring MoneySo with more providers seemingly competing in the D2C investment space, should the advice industry be keeping an eye on this adjacent market?
Hammond says it depends on the type of client an adviser deals with. A high net worth adviser, for example, probably needs not, although this could be different if a rich client was looking to pass wealth down to a younger generation.
“They can’t ignore it, even if they’re an ultra high net worth adviser,” he adds. “The mass market advisers probably need to embrace it, because their customers are not going to want advice at every single point.
“If they just want to put in [up to] £20,000 into their Isa this year, they’re not going to want advice for that quite a lot of the time.”
Mackay, meanwhile, does not think increasing competition in the D2C investment market will come at the cost of existing advice relationships. “It’s very rare that you interview or talk to a client of a financial adviser who would consider moving away from an advised relationship to a DIY investment relationship.
“I think the more interesting thing for financial advisers is that this is incubating their next generation of customers.”
She continues: “It’s starting people on the savings journey; it’s taking people from cash-only to become investors.
“Advisers will get queries from people they think they can’t service, so being able to refer people to these types of services is an entirely positive thing.”
Chloe Cheung is a senior features writer at FTAdviser
