The Competition for Retail Investors’ Savings is Intensifying
Abrdn and Interactive Investor are riding the wave of demographic change and digital technology to enhance customer experience
On December 2nd Abdrn, the Fund Manager, announced that it had agreed to acquire online platform Interactive Investor. In this blog we look at the drivers behind the acquisition and what it means for the wider wealth and savings and investment industry.
The acquisition logic appears to be a slam dunk for Abdrn
Abdrn is probably still better known as Aberdeen Asset Management: Abdrn was born out of the merger of Aberdeen and Standard Life in 2017. Aberdeen and Standard Life have traditionally been known for fund management. But Abdrn is now making an aggressive foray into the rapidly growing Direct Investment market and seeking to take advantage of the rising popularity of web-based savings and investment.
For us at Cashfac this move isn’t a surprise: it reflects the megatrends in our recent Wealth Management survey. The tie-up of Abdrn’s fund management expertise with Interactive Investor’s direct investment and tech-savvy expertise makes sense in a world of rapidly changing digital consumer preferences and an ageing demographic.
What are the megatrends behind the acquisition?
1. The Direct Investment market is very attractive and growing rapidly
The Direct Investment market has grown at a compound rate of 15% over the last 5 years. Some have grown even faster than others: Hargreaves Lansdown’s AUM have grown 70% in the last 4 years. There are many factors behind this which we explore below but accessing this market makes sense.
2. Changing investment preferences: retail investors like control through digital channels
Direct Investment platforms give retail investors control. No longer is “someone in the city” in control of their money. A recent PWC survey indicated that 49% of middle income and mass affluent now prefer a fully automated self-service model. A recent Deloitte survey identified that 75% of Wealth executives expect digital interaction will be the norm in 3 years. This desire for control and the rising number of younger, more digital savvy, investors is behind the rise of Direct Investment that Abdrn wants to access. As an example, Interactive Investor appeals to the younger generation via “Friends and Family” accounts with shared digital access.
3. Not only do retail investors like control, they want it on their mobile
Usage of digital channels for consumers to interact with their financial services providers are not new but there is a clear preference for mobile over online.
Mobile services provided by banks have rapidly expanded in recent years: mobile apps are now interactive, not static. The likes of AJ Bell and Hargreaves Lansdown have moved in this direction but still have a way to go. A Forbes survey showed that 78% of Americans used their mobile banking app (and not the website) for daily banking services. In the UK mobile apps overtook online as the most popular banking channel.
In Abdrn acquiring Interactive Investor (II) it is seeking to ride this wave. As the Abdrn press announcement stated, “II is focussed on continuing to deliver enhanced user experience for its customers following a successful roll-out of it’s mobile app”.
4. The Assets under Management of traditional fund managers are not growing and there is leakage to platform providers
Despite the long bull market, there has been sluggish growth or an absolute decline in assets under management at many fund managers and life insurers.
Like many in the life insurance and fund management sector, Abdrn’s AUM had shrunk in recent years: their AUM reduced from £670bn when the merger with Standard Life completed in 2017 to £532bn now. Similarly, the assets under management at some life insurers and bank wealth managers have also fallen, where they see asset leakage to platform providers due to enhanced digital capabilities. Aviva Investors is another player where Assets under Management have been sluggish. For Abdrn, acquiring II will give them access to the rapidly growing Direct Investment space.
5. Market competition and scalability
It is no surprise that in its acquisition announcement, Abdrn highlighted that in II it has acquired a “platform for scale and growth”. Interactive Investor has long invested in digital technology and by all accounts has a high degree of Straight Through Processing which enables cost effective growth. An analogue back office cannot effectively support a digital front end – costs will rise and profits fall. As we are seeing at Cashfac, many wealth managers and pension administrators are seeking a scalable back office aligned to a digital front end.
In Conclusion
Customer channels are going mobile – but digital channels cannot be built on the shaky foundations of an analogue back office.
The Abdrn acquisition makes total sense in the light of these megatrends impacting in the UK market. It is a bold move that will allow it to move into a high growth space.
However, it is a competitive market: our understanding is that before the acquisition, Abdrn possessed the only Open Banking enabled customer app in the wealth, savings and investment space. It cannot be long before other firms recognise that in delaying their digital adoption and not moving beyond a static inflexible customer portal, they are going to lose assets and customers.
AJ Bell have already announced they will launch “Dodl”, a low-commission investment app in 2022. As Andy Bell himself said, “We don’t want to wake up in 10 years’ time and find our customers have gone somewhere else”.
Wealth Managers and savings and investment providers who do not ride these waves are likely to be amongst those who do miss out.
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