May 10, 2016
|By Consulting Group|
Selftrade’s new pricing structure went live yesterday, and while it is just the latest of many broker pricing updates over the last few months, it may well be the most significant. While Fidelity, IG, SVS and Alliance Trust have broadly speaking made small changes, whether upwards or downwards, to existing price structures, Selftrade have made a more fundamental, almost philosophical change. By beginning to charge a % fee on the value of funds (unit trusts or OEICs) held, it leaves just 4 operators charging a fixed fee for holding funds. One of those, Alliance Trust, increased its prices just a few weeks ago. It does beg the question of whether a fixed fee model for holding funds is sustainable, at least at a level which people with smaller amounts are willing to pay.
Going to brokercompare.info, freshly updated with Selftrade’s new prices, the discrepancy between those operators which charge a fixed fee for holding funds, and those which charge a % fee, is clear. Anyone with £23,000 or more to invest in a funds ISA will see fixed fee operators fill out the top 3 places, assuming 2 fund switches per year and a 10 year investment period. Any fund investors with £60,000 or more to invest sees the fixed fee operators take a clean sweep of the top 6 places (Halifax, iWeb and Bank of Scotland are all part of Lloyd’s Banking Group), and above that level of assets the gap between fixed fee and % fee just gets wider.
With such a discrepancy on price, and incredibly strong brands such as Halifax and Bank of Scotland included, you would imagine that RDR would have led to fixed fee operators acquiring high value customers hand over fist. To some extent, that’s true – Alliance Trust increased its AUA from £4bn at the end of 20121 to £8.5bn at the end of 20152. However, such an increase in assets has not translated in increased profit. In 2015, while AUA increased by 32%, number of accounts increased by 18%, number of trades by 9% and revenue by just 7%. At the same time, annual losses increased by 33%, from £3.9m to £5.2m. It appears that the new customers attracted by Alliance Trust’s fixed fee model are disproportionately wealthy, but also disproportionately unprofitable.
Looking again at the 6 leading operators on brokercompare.info for investing £60,000, they have something in common beyond being fixed fee operators – none of them are rated very highly by companies like Boring Money or the Lang Cat for their user experience and customer service. The primary reason given by Alliance Trust for their recent losses is increased investment in technology to improve the product. It is possible that the wealthier customers who have moved to fixed fee providers over the last 3-4 years demand a quality of service that, at the moment, the fixed fee operators are struggling to deliver. If this has provoked Selftrade’s move to a % fee charging structure, there are at least 4 operators that will be watching very closely how they get on.
There is no doubt that, in general, this sees Selftrade moving from an economical provider to a mid-range one. With no charge for holding funds or for purchasing them, Selftrade used to be the number one choice for people holding funds and making additional regular investments. As the screengrab below from the brokercompare.info dev site shows, it is now much further down the list
Based on customer investing £50k in funds and £50k in shares for 10 years, held in an ISA, making 2 fund switches and 2 share switches each year and investing £500 per month split between 3 funds.
For any portfolio including funds, Selftrade has gone from being one of the cheapest, if not the cheapest option, to middle of the pack. However, for share-only portfolios, the reduction in trading fee from £12.50 to £11.75 doesn’t make that much difference – Selftrade remains one of the more expensive providers for trading equities. There is a concern therefore, that while Selftrade will undoubtedly make more money in the short-term from its existing customers, having given away a pricing USP its customer acquisition will suffer.
If it is able to continue growing its customer base even with the new pricing structure, there is a strong chance that the remaining fixed fee operators follow suit. If, on the other hand, it suffers a customer exodus as increasingly price-aware customers choose operators who are more cost-effective for their individual needs, brokers will continue to search for new pricing structures which marry value with service
April 18, 2016
|By Consulting Group|
The price comparison industry has changed the way that people choose utilities and insurance, with 30 million Britons using price comparison sites each year.
Although the broker market has historically been neglected by major comparison sites, niche providers such as brokercompare.info show that broker comparison is possible, and the major sites will enter the market in the near future as they look to investment / fintech products as their next source of growth.
Customers appreciate the simple and accessible way in which price comparison sites present complex information, which is ideal for the complex pricing of the broker market. According to an FCA study of comparison sites, consumers believe that,
“they make a potentially boring and difficult job relatively painless”
In the 2014/15 tax year 10.2 million people invested in a cash ISA, compared with 2.8 million investing in a stocks and shares ISA. According to the Platforum, just 15% of UK adults hold risk-based investments, compared with 48% of US adults.1
There is an enormous untapped market for share and fund dealing services, and price comparison websites can help brokers address it. A good price comparison site can give an investor a very good idea of how much they will pay to use different brokers, based on their individual investing behaviour. On top of this, they have an existing market of 30 million users.2
Most brokers are not ready for their customers’ choices to be determined by price comparison sites, but the changes which will be necessary will not automatically lead to a race to the bottom for pricing.
There are three basic pricing structures brokers can follow:
|Fixed fee for all trades|
|Charge for each service|
Each of them can come out at the top of a comparison table for different types of customer.
The challenge for brokers is to offer a pricing structure which performs well for its target customer across multiple channels including price comparison sites.
A broker should be able to analyse how its prices perform for new customers on a price comparison tool, understand the impact of possible new structures for both current and future customers and then ensure its product meets the needs of its future customer base.
Black Swan Partners
Black Swan Partners is a specialist retail finance consultancy with a deep understanding of pricing and price structures within the broker market. We perform strategic analysis of existing customer bases for leading brokers, help to deliver significant cost savings and develop market leading products such as our customer facing comparison tool Broker Compare. Should you wish to discuss any of the topics raised in this paper, please contact us
2Mintel, Web Aggregators in Financial Services, June 2013
February 9, 2016
|By Consulting Group|
Across the stockbroking industry consumers are faced with complex charging structures, which has made it difficult to calculate the expected cost of an individual’s investment activity.
One specific charge, often tucked away in the ‘additional fees’ section, is the ‘transfer out’ or ‘exit fee’ cost. This levy was traditionally implemented to reflect the cost of manually transferring and re-registering stock, however, as highlighted in the FT article ‘Digital transfers increase pressure over platform exits’ technological advancements have rendered this fee almost redundant. In 2015 tech provider Altus claimed that eight of the biggest direct-to-consumer providers carry out live electronic transfers (up from 2 at the end of 2013).
Instead of the providers reducing or removing transfer fees, they remain ever-present and can have a significant impact on the cost of trading. With most providers charging a fixed fee per holding transferred, it costs a typical investor, holding eight assets, up to £280 to transfer an ISA to another provider. This practice effectively ‘locks’ in a user and acts as a major barrier to switching. Out of the 19 execution-only stockbrokers researched only Fidelity, IG and TD Direct offer free transfers out.
Large numbers of potential equity investors are deterred from investing due to a lack of knowledge and understanding, exacerbated by complex pricing and ‘hidden’ charges such as exit fees.
Better tools to compare broker charges, such as our BrokerCompare product need to include the transfer out costs to help people understand the impact these additional charges can have.
Of course, there has been good work on simplifying fund charges and these still make up a large percentage of costs, but removing the initial layers will help make investing less complex and even trigger its growth. Unravelling fees will allow traditional stockbrokers to compete with alternative investing methods such as algo investors which leverage themselves on transparency and cost.
The table below demonstrates the cost of transferring an ISA account across providers
|Company||ISA Transfer Cost
(Per Holding unless stated)
|Alliance Trust||£100 + VAT (flat rate)|
|Halifax||£25 (max £125)|
|Bank of Scotland||£25 (max £125)|
|iWeb||£25 (max £125)|
*Interactive Investor waives transfer-out charges for up to ten lines of stock (£15 per line of stock after that), if you choose to leave within a year of opening your account.
If you are interested in understanding how your business can improve its pricing, product proposition or consider how algo can be included in your business proposition, then contact us at email@example.com
January 13, 2016
|By Consulting Group|
While working on Broker Compare, our tool that allows retail investors to choose the best value Stocks and Shares ISA, we started thinking about the role of mobile in this sector.
Broker Compare includes 19 of the UK’s biggest online brokers/platforms and is mobile optimised. So far so good, but only three of the 19 have mobile-optimised account opening.
Why is this? An excuse I heard once from someone in the FX / CFD sector was that ‘no-one opens their account on their phone’, but they were wrong. Application processes need to be mobile-optimised. The gambling sector is being transformed by mobile – in 2014 William Hill reported a 298% increase in mobile betting revenues.’1
It is amazing that the majority of existing brokers/platforms are not addressing this and still don’t look at the behavior of other sectors and a minority of their users to determine how their future customers will behave.
Given this, what kind of reasons apart from budget and resource do we expect to hear from brokers / platforms for their lack of mobile optimised account opening?
|There is too much info to fill in on a mobile.||Well designed forms can easily address this. See Natwest mortgage application (on mobile).|
|I need to be verified by sending scans of my ID and utility bill.||For millennials scanners are irrelevant. Photos of a DL, Passport, bill, even a selfie (location tagged) can be done on a smartphone. See Revolut.|
|Terms and conditions are too long to read on a mobile.||Ts and Cs are too long on PC and mobile, full stop. They should be summarised, but available to review and emailed in both forms and clearly available when it comes to trading.|
|Why would anyone trade long-term investments on their mobile?||The Hargreaves Lansdown app has been downloaded over 400,000 times with 7.9% of share deals completed via the platform in 2015.2|
|None of our competitors do it.||Someone has got to be first. Just look at the effort Atom Bank goes to to collect info pre launch.|
The reality is that mobile is here to stay and users will continue to do more and more on their phones – a friend recently celebrated the fact that they had applied for, and received, a mortgage offer on their iPhone 5. This makes the broker platform situation even more frustrating. Last year Facebook reported 72% year on year growth in mobile advertising. Now if ad revenue is growing at that rate, but only 15% of equity brokers we looked at have any means of mobile account opening, how are they going to even begin to reach the mobile audience?
Given the situation, where does this leave the sector? It leaves it vulnerable to being upstaged by retail finance companies diversifying into the broker sector including the algo-investing and robo advice companies and the new discount brokers all of which are desperate to build their assets under management through multiple channels.
This is not meant as a criticism of the existing PC (and in some instances tablet) based services offered by leading providers to the existing customers, it is making the point that the penetration of share ownership will remain stubbornly low if providers don’t adapt to attract new audiences.
This spring, when the UK government sells £2billion of Lloyds Bank shares, why can’t all those millennials with an extensively publicised, government-backed excuse to start their investing careers, go to a mobile optimised comparison tool, sign up on their smartphone and invest? It should not be too much of an ask given that latest research shows that the average user checks their phone over 85 times a day…
The table below demonstrates how rare mobile account opening processes are for stockbroking platforms:
|Provider||Mobile Optimised Site||Mobile Account Opening|
|Bank of Scotland||✘||✘|
Black Swan Partners is a retail finance consultancy that specialises in product development, market analysis, pricing and social functionality. For a free consultation please contact us at firstname.lastname@example.org
December 16, 2015
|By Consulting Group|
Why is it so difficult to compare the cost of share dealing, ISA or SIPP accounts? Technological advancements have given consumers the freedom to shop around for financial products, driven by companies such as MoneySuperMarket, CompareTheMarket, uSwitch and Confused.com. However, while this has proved successful for borrowing, TV and utilities, investments are significantly underrepresented.
Why is this?
In a word – complexity. Current fee structures are so complex that not even the price comparison sites, let alone the consumers can easily determine how much holding a trading and investment account will actually cost. Now bear with us:
The majority of providers offer three accounts: share dealing, ISA’s and SIPPs but the fee structures vary greatly. Take Hargreaves Lansdown (HL) as an example. HL charges a percentage-based annual management fee on assets held in funds (not individual equities), capped at a not insignificant £4,000 per year. For ISA and SIPP accounts there are additional percentage fees, this time charged on the total value of the assets, capped at £45 and £200 respectively. This is in addition to tiered trading costs that decrease in relation to trading activity in the previous month, charged for trades in individual equities (but not fund trades, which are free). Halifax on the other hand charges a flat, annual admin fee for an ISA but a percentage, quarterly admin fee for a SIPP, as well as flat trading costs.
Enough said, and those are just two providers. With over 30 different brokers consumers are faced with fees for platform use, funds, transfers, inactivity, exit costs, telephone trades, dividend reinvestment and an array of other additional fees.
This complexity is not a new issue; Holly Mackay’s ‘Boring Money’s Guide to Online Investment Services’ described Barclays Stockbroking charges as ‘hellishly complex to work out if you have both shares and funds,’ and ‘one of the most complex pricing structures around.’ It also described TD Direct’s pricing as being ‘too complex for our liking,’ and TheShareCentre’s as ‘really hard to work out.’
What is Black Swan Partners doing about it?
With a great deal of experience working alongside broker platforms, Black Swan Partners knows that complex pricing is not a necessary evil. Whilst the industry has services such as ComPeer it is time more effort was put into ensuring consumers get the information they deserve. We have developed The Black Swan Partners BrokerCompare tool, that allows consumers to calculate the projected cost of a bundle of investments across a selection of share-dealing providers.
Whilst taking into consideration a number of listed assumptions, the tool calculates the annual and 1st year cost of the service. It also provides a breakdown of the charges including platform fee, fund, total trading, ISA, SIPP, regular investment and exit fee costs. Providers are ranked from cheapest to most expensive. More experienced investors can input a mixture of shares and funds, add to their investments monthly or annually, use tax wrappers such as SIPPS and ISAs and specify how they will trade across the year.
It is early days, but the result is an easy to understand tool that clearly outlines how much a user will be expected to pay for their investments over a given period. The tool is currently limited to Interactive Investor, Hargreaves Lansdown, SVS Securities, Halifax, Fidelity, BestInvest, TD Direct, Alliance Trust and AJ Bell, with new providers being added regularly, but also on request.
We pride ourselves on helping companies ensure their clients achieve better financial outcomes and we believe this tool is a step in the right direction for the sector.
If you have any comments, questions or suggestions or are a provider that would like to be included, please feel free to tweet us @BlackSwanBSP or email us at email@example.com.
October 6, 2015
|By Consulting Group|
Why does this get a mention on a financial consultancy blog? Having converted to an iPhone in January ’15 after 10+ years as a Blackberry die-hard I have had an amazing 10 months of new app experiences. Uber (leave for another day), Sonos, Spotify, Strava, WhatsApp etc are all good, but Citymapper stands out. Why?
With so much fintech competition, it can often be the detail that makes the difference and allows a new start up to compete with established brands. In the mapping area, Google so often wins in head to heads, but ultimately companies come along and challenge the status quo.
Citymapper does what it says. It knows your location in London, so all you need to do is put in your destination. So far so does Google maps, but this is where the comparison ends. Citymapper thinks for a while then gives you multiple options, with prices and times. In London these options include walking, Santander Cycles, buses, tubes, boats, trains, Uber and if inclined jetpack. It sounds simple, but lets look at a few areas:
We like this because it ties in to one of our key service areas in retail finance – pricing. By giving clear indications of price options for example: walking – free, bus – £1.50, tube £2.30, boat £6, uber £11-£15 it immediately appeals to a broad set of clients that can all get specific value from it whether wanting to prioritise time over money or even health as it also includes calorie count.
Referral and Detail:
I had happily used Google maps (even on the Blackberry), so why switch? Firstly, by being a quality product it was recommended to me (a key part of all start up retail fintech experiences). The simple ‘Get me home’, ‘Get me to work’ buttons shows they are dealing with real users and have thought about what we do every day of our lives… In terms of detail, if you are a tube user how often have you arrived at a station and then looked for the exit and found it to be the other end of a crowded platform? On the daily commute you know where to go, so why not on the other trips around London. Citymapper steps in here and tells you a. what end of the train to broad and b. when you exit which exit to use. If you are in London it gives you a Rain Safe route, if in Singapore a ‘Haze free route’. Simple, but smart.
If the service you are providing gives you and others an advantage, then individuals may be willing to help further improve it. In Citymapper there is a neat function that allows you to ‘improve data’. e.g. suggest front of the train, not the middle, use a different exit etc. Using its own customers to enhance the product through feedback. Again something that is a challenge for retail finance brands in a regulated environment, but something that should be embraced.
It has become an invaluable tool for the Black Swan Partners team as we plan our days running around town meeting clients and prospects seeing friends, going to sporting events, saving minutes every day and being such a good user experience that we even write this blog about it.