08 Aug No respite for the direct market in 2023

The trading environment in the second quarter provided no respite from the headwinds that have been pummelling the direct platform market. Platforms have been helped by modest market gains, meaning the majority were able to post positive asset growth. Gross flows were a comfortable £11.4bn for the quarter, but the all-important net figure was in the doldrums at £3.9bn as investors adjusted to higher living costs and prioritised cash products.

Hargreaves and interactive investor (now part of abrdn) are the largest platforms by assets, but Vanguard was the fastest growing in monetary terms, adding £1.2bn during the quarter, taking assets to £16.8bn. At the other end of the scale, InvestEngine was the fastest growing in percentage terms, albeit from a small base. Assets jumped 32% to £215m in the quarter, as its ETF-only proposition gathered momentum. The founders are ex-Gumtree and are leveraging their consumer knowledge and internet expertise to great effect.

While gross flows jumped to their second highest level in the last four years, so too did outflows as the cost-of-living crisis continued to bite. At just £3.9bn for the quarter, net sales were down by 7%, 46% and 29% against the same quarter in the previous three years. Some platforms managed to attract strong flows despite the difficult market conditions. Interactive investor was the best for net flows for both the quarter and the year to date, but only the Halifax Share Dealing platform registered its best second quarter on record.

Martin Barnett, Head of Content at Fundscape said, ‘The poor ISA season has set the tone for the rest of this year. In addition, the headwinds the direct market is currently facing are not going to disappear any time soon, so platforms must work very hard to attract new customers and flows. In such an environment, the benefits of scale come sharply into focus. Any improvement in markets help larger firms disproportionately, increasing assets and revenues (in most cases).

‘The longer high inflation and interest rates continue, the greater the pressure on smaller platforms. We don’t expect the situation to improve until the mid-2024 at the earliest. The door is therefore well and truly open for larger players to potentially acquire distressed platforms at knockdown prices.’

– Ends-

Notes to Editors:

The Direct Matters report covers the direct market and is published by Fundscape. It has been running since Q121. For further information or background please contact: press@fundscape.co.uk or visit https://fundscape.co.uk/service/direct-matters/

Download full press release here.

1. Advised portion of HL’s business has been excluded.

2. Interactive investor provide assets and net flows. Gross flows are estimated.

Photo by Nate Bittinger on Canva