20 Dec Dodl goes head to head with trading apps
The D2C market exploded during the pandemic and competition for consumer business is fierce. AJ Bell’s direct platform, YouInvest, has done rather well out of it, but keen to not stand still it’s now going head to head with trading apps and Vanguard with its new app, Dodl.
Launching next summer, Dodl is a simple concept that builds on AJ Bell’s success in ‘lite’ versions of its products and propositions. First was the Retirement Investment Account, its low-cost Sipp for advised clients, and now Touch for advisers and Dodl for consumers. Touch and Dodl are simplified, low-cost, app-based versions of Investcentre and YouInvest respectively. AJ Bell is looking to keep the momentum going, which has seen more than 70,000 new customers join in the last year.
A lot of AJ Bell’s new users are interested in its low-cost multi-asset range, and its Sustainable Growth Fund launch was the most successful in AJ Bell’s history. These funds will be available on Dodl, as well as commission-free trading on 50 blue chip shares, a shortlist of third-party funds and a near full product suite for a very competitive, very Vanguard-like, 0.15%.
This might have ruffled some feathers at Vanguard whose near-identical pricing structure, but much pared down choice of proprietary funds now has some real competition. Vanguard has been quietly going about its business in the UK, and this quarter it added more new customers than D2C behemoth Hargreaves Lansdown, illustrating how much appetite there is among new investors for simple, low-cost solutions.
Customer numbers at Vanguard have doubled from 180,000 to 337,000 – a huge increase in less than a year and quickly closing in on the scale of recently sold interactive investor (400,000 clients). Even more impressive is that Vanguard’s platform growth has been organic, and it only launched in 2017.
It will be interesting to see how Vanguard reacts to Dodl and in particular whether it ramps up its plans for its low-cost hybrid advice service in the UK. It’s been a very successful model in the US, where it has grown assets to more than £196bn in less than four years, and Vanguard thinks it can be just as successful in the UK. The provision of low-cost advice will set it apart from AJB’s Dodl.
More Pixar than Forex
Dodl’s commission-free charging also ruffled some feathers in the trading app world, particularly at Freetrade. Though Freetrade has over £1bn in assets, it has a million customers which, when run through our supercomputer, results in an average customer holding of £1,000. Dodl’s pricing means that charges for ISAs under £24,000 will be lower on Dodl, which is likely to be a huge chunk of Freetrade’s customers.
On the announcement of Dodl, Freetrade founder Adam Dodds shot an unusually brash arrow across AJ Bell’s bow, claiming the Dodl branding treats young investors ‘like they’re idiots’ and that YouInvest was ‘complete garbage’. While Dodl’s branding is certainly more Pixar than Forex, featuring a cartoon monster that guides you through the app, plenty would disagree that YouInvest is a hot pile of rubbish, namely its 70,000 new customers.
Which way’s up?
With Dodl and simplified advised platform Touch, AJ Bell will be entering new territory. The low pricing undercuts most of the market and both platforms will feature AJ Bell funds, growing its rapidly growing investment arm business even more.
The developments at AJ Bell are a good example of building on sustained success and adapting to a changing client demographic. Dodl’s wading into the D2C space will make it even harder for smaller players and there are likely to be a few more that are forced to partner with large financial services providers or sadly bite the dust.
For all the innovation and customer number growth in the sector we do need to acknowledge those that have run their last race. Wealthsimple’s (a robo-adviser) exit from the UK in December 2021 has been described as the first casualty in a saturated market. The Canadian robo-adviser, which holds £8.8bn in worldwide assets and serves more than two million customers across Canada and the US, has sold its UK client book to Moneyfarm, one of its UK rivals. This will see 16,000 customers transfer from Wealthsimple to Moneyfarm before the end of January 2022.
The culture and brand were pitch-perfect (Wealthsimple was one of our favourite robos), so its departure highlights just how difficult it is to acquire a meaningful customer base in the UK. Moneyfarm’s assets will notionally rise to £2bn but not all the money will transfer. Wealthsimple customers can close their accounts (as we did), while other robos have been advertising Wealthsimple deals on their websites. Nutmeg is a case in point (no fees to pay for 12 months).
The market is overserved and we should expect more exits. WealthSimple was reporting annual losses so we can understand why the owners decided to focus on core markets abroad. Having said that, building a D2C presence takes more than a few years and very deep pockets. As with several digital services that have gone before it (Moola, Click & Invest, UBS SmartWealth, Tiller Investments), not having a known brand, an existing customer base or very deep marketing pockets makes it very tough to succeed.
Access to customers
The exit of Wealthsimple and others shows that access to customers is the first success criterion for any D2C business and it is where many start-up ventures have struggled. They may have compelling propositions and wonderful technology, but without the ability to attract sufficient customers they count for nothing. The top four D2C platforms have acquired 400,000 new customers this year alone, which makes it a very challenging environment for new entrants.
If existing market leaders continue to be successful in improving their brand recognition, useability, service and pricing it will inevitably lead to them attracting a greater share of flows and benefitting from the economies that come with scale. This increases potential barriers, creating a concentration effect. Firms that achieve this scale will become increasingly important to asset managers wishing to take advantage of this growing investor cohort. It’s a merry-go-round.