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UK's DIY investment platforms, robo advisers take £17.7B hit on Brexit concerns


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UK's DIY investment platforms, robo advisers take £17.7B hit on Brexit concerns

Total assets under administration in the U.K.'s DIY investment market slumped by £17.7 billion in the fourth quarter of 2018 to £205.8 billion, according to research from personal finance website Boring Money.

The 8.6% quarter-on-quarter fall came as the U.K. ramped up preparations for its divorce from the European Union at the end of March 2019.

The DIY investment market, which allows consumers to manage their portfolio without an adviser or broker, ranges from large and established firms such as Hargreaves Lansdown Plc to smaller, newer players such as Moola and Nutmeg Saving and Investment Ltd.

"Short-term nerves about market uncertainty" as Brexit approaches have stymied the growth in DIY investment market, Holly Mackay, CEO of Boring Money said in an interview on the sidelines of the report's launch event in London on Feb. 26.

Richard Theo, CEO and co-founder of robo advice platform Wealthify Group Ltd., agreed that that consumer jitters about the U.K.'s impending exit from the EU have affected the online investment market over the past quarter.

"People have become spontaneously risk averse. It has happened very suddenly and very recently, as people are waking up to the fact that we might actually have a hard Brexit. There is this momentary revert to absolutely zero risk taking place at this precise moment, and hopefully it will be short-lived. I just hope that the U.K. government will get on and decide something on March 29th," he said.

Wealthify, which launched in 2014, counts Aviva PLC as one of its controlling shareholders, the insurer having bought a majority stake in 2017.

Simple offerings, decent returns

Brexit anxieties may have been a key factor in the runaway success of Goldman Sachs Group Inc.'s Marcus savings accounts, Theo said.

Marcus has signed up more than 100,000 customers since its 2018 launch in the U.K., promising customers an initial 1.5% interest rate on its instant access savings accounts, which is higher than the rates offered by most high street lenders.

Consumers are eager to put their money "somewhere" and want to have simple offerings that promise decent returns.

"You can see why so many people have jumped in at this better-than-ever-before cash offer at this moment of risk aversion," he said.

Although the DIY investment market had a difficult fourth quarter, AUA grew 0.5% year on year, according to Boring Money's report.

Even so, Mackay said that she is "disappointed" that online investment has not posted more impressive growth.

"I don't really think that we as an industry have been innovative. We have just tinkered with distribution models and created somewhat better customer experiences" she said, speaking during a presentation," she said.

'Get rid of jargon'

The DIY investment industry is also missing opportunities because it uses too much jargon, Mackay said.

While the U.K. regulator is eager to see consumers shopping around to find the most suitable personal investment products, the reality is that the general public can find the world of online investing oblique and off-putting, according to Mackay.

Members of the public are disenchanted with robo advisory and online investment firms that only provide detailed information about their products once they have handed over personal details such as email addresses and phone numbers, she said.

Only 14% of consumers describe themselves as confident or very confident about opening an online investment account, according to Boring Money's research, which polled 6,000 U.K. adults.

When Boring Money asked consumers what change would make them most likely to consider opening an online investment account, the single biggest response was "get rid of jargon," according to the research.

The average age of a DIY investor is 49, and the majority of customers are male, with women making up just 34% of investors, according to the report. Only 10% of women said that they would feel "very confident" opening an online investment account compared with 18% of men.

The industry needs to stop treating women like a "niche market," Mackay said.

Women aged between 40 and 60 are an increasingly important demographic for the industry, especially those who have gone through a divorce and are learning to manage savings and investments on their own for the first time, she said.

The DIY investment market accounts for a small fraction of the U.K. retail investment landscape. Total U.K. investor funds under management (retail) reached £1.2 trillion in 2017, according to the latest data available from the Investment Association, an industry body.