Abstract
Individual shareholding has steadily declined since the end of the dotcom crash. More recently, amid the turmoil of the credit crunch and the economic slowdown that has resulted, volatility in global stock markets has deterred many consumers from equity-based investment. In addition, some investors are seeking out lower-risk areas, such as gilts, bonds and commodities. At the same time, though, with the growing popularity of derivatives, ETFs and collective investments, many stockbrokers are expanding their product range to include indirect equity-based investment devices.
With broader company exposure and the benefits of a professional fund manager, collective investments have grown increasingly popular in recent years, as have ETFs more recently. Derivatives trading has also grown massively, in particular spread betting as it enables investors to hedge their positions and make gains in declining markets as well as rising ones. Whilst this may have affected demand for individual share ownership to some extent, many argue that this is a complementary product, not a competing one, and it could even tempt new investors into the market.
This report looks at some of the key factors that influence demand within the sharedealing market, from stock market volatility to population demographics. It considers competitive products, such as buy-to-let (BTL), cash ISAs and collective investments. Strengths and weaknesses in the market are outlined prior to an assessment of market size, forecast growth and distribution channels. Some of the key players are considered in the context of recent market developments and individual market shares. Finally, the report rounds off with a discussion of the consumer research that was conducted for this report and what it might suggest for those within the sharedealing market.
Key issues
- The credit crunch, economic slowdown and volatility in global stock markets.
- Weakening investor sentiment and stretched consumer finances.
- Movement into lower-risk investment categories.
- Rising demand for collectives investments, ETFs and derivatives.
- Traditionally weak consumer appetite for risk-based investment.
Table of Contents
- Issues in the MarketKey issues
- Background and definitions
- Stocks and shares and related assets
- Tax-related concepts and products
- Financial products and investment vehicles
- Other related definitions
- Abbreviations
- Market in Brief
- Cash market has fallen while collectives and derivatives have grown
- Figure 1: Execution-only stockbroker trading volumes, by type, 2000-07
- Stock market volatility has deterred investors
- Collectives a popular alternative to direct share ownership
- The share of online brokers within the XO sector has grown
- Figure 2: Market share of XO trades, by firm type, 2003, 2005 and 2007
- Share ownership is a niche pursuit...
- Figure 3: Ownership of long-term savings and investment products, July
2008
- ...with many that own shares having obtained them passively
- The credit crunch has impacted affordability
- Figure 4: Attitudes towards sharedealing in respect of current economic
conditions, July 2008
- Internal Market Environment
- Key points
- Consumer confidence is key to sharedealing...
- Figure 5: Central position of confidence in consumers' attitudes to
investment, 2008
- ...and most people simply can' t afford to do it
- Figure 6: Barriers to investing in shares and other stockmarket-based
investments, July 2008
- Individuals hold 13% of UK shares
- Figure 7: Total value of equity owned (ordinary shares) by individuals
in the UK, 1997-2006
- Increased stock market volatility may discourage investors...
- Figure 8: FTSE 100 and FTSE All-Share performance, January 2006-May 2008
- ...but may encourage alternative investment
- Recent falls in banks' share prices may further dent confidence
- Share trading has declined since the start of the year
- Figure 9: Number and value of trades on the London Stock Exchange,
January 2000-May 2008
- The impact of MiFID
- Broader Market Environment
- Key points
- A gloomy economic outlook...
- ...has lead to weakening consumer confidence
- Figure 10: Consumer confidence, by household income band, January
2003-June 2008
- ...and a reduction in equity-based investment activity
- Figure 11: 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 2003-Q2/Q3 2008
- Changes to CGT makes investing in shares more appealing
- Relatively high interest rates may deter equity investment
- Figure 12: Base rate, January 2000-July 2008
- Long-term growth in PDI bodes well for the investment market
- Growth in the number of ABs is good news for stockbrokers
- Figure 13: UK population splits, 1993-2013
- The internet has become a powerful source of information...
- Figure 14: Websites browsed for information purposes in the last three
months, 2002-08
- ...as well as an effective platform for purchasing investments
- Figure 15: Websites actually purchased from in the last three months,
2005-08
- Competitive Context
- Key points
- Low risk investments are generally more popular
- Figure 16: Investment ownership, April 2008
- Cash ISAs are a tax-efficient alternative to equity investments
- Figure 17: Cash* component subscriptions into all ISAs, 2001/02-2007/08
- Collective investments have grown in popularity
- Figure 18: Total IMA funds under management (FUM) and net retail sales
(NRS) in the UK, 2000-07
- Buy-to-let is no longer an attractive investment...
- Figure 19: Mix-adjusted house prices, all UK dwellings, (not seasonally
adjusted), Q1 2000-Q1 2008
- The value of BTL mortgages has trebled since 2003
- Figure 20: Number and value of BTL mortgages outstanding, 2000-07
(year-end)
- Other alternatives to share ownership
- Strengths and Weaknesses in the Market
- Market strengths
- Growth in the number of online brokers and information sources
- Growing number of wealthy consumers
- Increasing popularity of spread betting and CFDs
- Changes to ISA rules give investors increased flexibility
- Market weaknesses
- Volatility in the stock market undermining investor confidence
- Stretched household finances mean less income to invest
- Investment in collectives rivals trading in individual shares
- Equity investments are seen by many people as too risky and complicated
- Market Size and Forecast
- Key points
- The value of shares owned by individuals has risen 44% since 2002
- Figure 21: Total value of equity owned (ordinary shares) in the UK,
2000-06
- Stocks and shares ISA subscriptions have levelled off...
- Figure 22: Stocks and shares component subscriptions into all ISAs,
2001/02-2007/08
- ...with larger increases observed in collective investments
- Figure 23: Market value of ISA funds, stocks and shares component, as of
5 April, by type of qualifying investment, 2001-07
- Private client trading volumes have fallen since 2000...
- Figure 24: Volume of UK equity bargains, institutional and private
client, 2000-07
- ...whilst CFDs and spread betting are gaining in popularity
- Figure 25: Execution only stockbroker trading volumes, by type, 2000-07
- In short, direct equity investment is declining...
- Figure 26: Net investment in UK equities, by mandate type, 1998-2007
- ...with a switch to alternative products seen
- Forecast
- Individual share ownership is expected to continue declining...
- Figure 27: Forecast of the market share of individually-owned equity
(ordinary shares) in the UK, 2003-13
- ...while the number of online investors is expected to rise
- Figure 28: Forecast of the number of online investors, 2003-13
- Factors used in the forecast
- Market Segmentation
- Key points
- Stockbrokers account for a small part of the private wealth management
industry...
- Figure 29: Market share of total revenues within the UK private wealth
management industry, by type of company, 2003-07
- ...with a move towards more advice-based investment
- The number of XO trades through online brokers has increased
- Figure 30: Market share of XO trades, by firm type, 2003, 2005 and 2007
- While in the full-service sector, large firms dominate
- Figure 31: Market share of full-service stockbrokers, by firm size (in
terms of investment assets), 2003-07
- Market Share
- Key points
- The overall stockbroking market is very mixed
- Figure 32: Most active private client member firms trading within the
FTSE 100, January 2007-March 2007
- Market share of spread betting firms
- Figure 33: Estimated market share of firms in the spread betting market
- Companies and Products
- Key points
- Three different types of stockbroker
- The market has continued to consolidate
- Figure 34: Number of stockbroker firms, 2000-07
- Turbulent times may suit full-service brokers better
- Figure 35: Investment assets, by mandate type, 2005-07
- Execution-only brokers seek to encourage frequent trading...
- ...and many have increased their product range...
- ...and used other strategies to attract clients
- Discretionary services have become more popular...
- ...with full-service brokers enjoying higher commissions
- Full-service brokers expanding their range of advice
- Brand Communication and Promotion
- Key points
- £50 million was spent on advertising investments in 2007Figure 36:
Advertising expenditure within all financial services, by top-level category,
2004-07
- Overall stockbroker adspend has steadily increased
- Figure 37: Advertising expenditure within selected investment/asset
management* categories, 2004-07
- Barclays is the top advertiser of sharedealing services
- Figure 38: Advertising expenditure of the top 20 stockbroker* firms,
2004-07
- Internet advertising has grown considerably in recent years
- Figure 39: Advertising expenditure of stockbroker* firms, by media type,
2004-07
- Channels to Market
- Key points
- Online trading has become the dominant channel...
- Figure 40: Number of execution-only trades made through external client
traders, by channel, 2007
- ...as the number of online clients has grown
- Trading over the telephone is not uncommon though
- Figure 41: Methods used to buy shares, September 2007
- The Consumer: Product Ownership
- Key points
- Only two fifths of consumers own individual shares
- Figure 42: Ownership of long-term savings and investment products, July
2008
- Men are more typical equity investors...
- Figure 43: Ownership of long-term savings and investment products, by
gender, age and socio-economic group, July 2008
- ...as are older consumers...
- ...and more wealthy individuals
- Share ownership is more common in the City
- Figure 44: Ownership of long-term savings and investment products, by
region and newspaper readership, July 2008
- Broadsheet readers more prone to investment
- Those with more to invest are generally more involved
- Figure 45: Ownership of long-term savings and investment products, by
value of investable assets, July 2008
- Risk and affordability are the two biggest barriers
- Figure 46: Barriers to investing in shares and other stockmarket-based
investments, July 2008
- Knowledge is key to getting women involved
- Figure 47: Barriers to investing in shares and other stockmarket-based
investments, by gender, age and socio-economic group, July 2008
- Young people just aren' t interested
- Less barriers to sharedealing in London
- Figure 48: Barriers to investing in shares and other stockmarket-based
investments, by region and newspaper readership, July 2008
- Broadsheet readers are more receptive
- Opportunity exists for those with up to £30k to investFigure 49: Barriers
to investing in shares and other stockmarket-based investments, by value of
investable assets, July 2008
- Cash-based savers don' t like taking risks
- Figure 50: Ownership of long-term savings and investment products, by
barriers to investing in shares and other stockmarket-based investments,
July 2008
- Investment fund ownership may lead to shareholding
- Figure 51: Cross-holdings of long-term savings and investment products,
July 2008
- Potential for broker tie-ups with pension companies?
- The Consumer: Origins of Share Ownership and Methods of Purchase
- Key points
- Around half of shareholders have obtained shares passively
- Figure 52: Origins/types of share ownership, July 2008
- Advice-backed share purchase is relatively low
- Men are more active self-researchers and buyers of shares
- Figure 53: Origins/types of share ownership, by gender, age and
socio-economic group, July 2008
- Older investors are more prone to seek advice
- Those with more assets are more likely to seek advice
- Figure 54: Origins/types of share ownership, by value of investible
assets, July 2008
- Equity ISA owners are more active shareholders
- Figure 55: Origins/types of share ownership, by ownership of long-term
savings and investment products, July 2008
- Low-cost sharedealing services dominate...
- Figure 56: Methods of buying shares, July 2007
- ...though traditional brokers still have a role to play
- Active shareholders have fewer reservations towards investing
- Figure 57: Origins/types of share ownership, by barriers to investing in
shares and other stockmarket-based investments, July 2008
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