Sharedealing and Online Investing - UK - September 2008

TABLE OF CONTENTS

• Issues in the MarketKey issues
• Background and definitions
• Stocks and shares and related assets
• Tax-related concepts and products
• Financial products and investment vehicles
• Other related definitions
• Abbreviations
• Market in Brief
• Cash market has fallen while collectives and derivatives have grown
  • Figure 1: Execution-only stockbroker trading volumes, by type, 2000-07
• Stock market volatility has deterred investors
• Collectives a popular alternative to direct share ownership
• The share of online brokers within the XO sector has grown
  • Figure 2: Market share of XO trades, by firm type, 2003, 2005 and 2007
• Share ownership is a niche pursuit...
  • Figure 3: Ownership of long-term savings and investment products, July 2008
• ...with many that own shares having obtained them passively
• The credit crunch has impacted affordability
  • Figure 4: Attitudes towards sharedealing in respect of current economic conditions, July 2008
• Internal Market Environment
• Key points
• Consumer confidence is key to sharedealing...
  • Figure 5: Central position of confidence in consumers' attitudes to investment, 2008
• ...and most people simply can't afford to do it
  • Figure 6: Barriers to investing in shares and other stockmarket-based investments, July 2008
• Individuals hold 13% of UK shares
  • Figure 7: Total value of equity owned (ordinary shares) by individuals in the UK, 1997-2006
• Increased stock market volatility may discourage investors...
  • Figure 8: FTSE 100 and FTSE All-Share performance, January 2006-May 2008
• ...but may encourage alternative investment
• Recent falls in banks' share prices may further dent confidence
• Share trading has declined since the start of the year
  • Figure 9: Number and value of trades on the London Stock Exchange, January 2000-May 2008
• The impact of MiFID
• Broader Market Environment
• Key points
• A gloomy economic outlook...
• ...has lead to weakening consumer confidence
  • Figure 10: Consumer confidence, by household income band, January 2003-June 2008
• ...and a reduction in equity-based investment activity
  • Figure 11: Intended purchases of shares and equity based unit trusts, government and corporate bonds and bond-based unit trusts*, and sales of equities and unit trusts, Q3/Q4 2003-Q2/Q3 2008
• Changes to CGT makes investing in shares more appealing
• Relatively high interest rates may deter equity investment
  • Figure 12: Base rate, January 2000-July 2008
• Long-term growth in PDI bodes well for the investment market
• Growth in the number of ABs is good news for stockbrokers
  • Figure 13: UK population splits, 1993-2013
• The internet has become a powerful source of information...
  • Figure 14: Websites browsed for information purposes in the last three months, 2002-08
• ...as well as an effective platform for purchasing investments
  • Figure 15: Websites actually purchased from in the last three months, 2005-08
• Competitive Context
• Key points
• Low risk investments are generally more popular
  • Figure 16: Investment ownership, April 2008
• Cash ISAs are a tax-efficient alternative to equity investments
  • Figure 17: Cash* component subscriptions into all ISAs, 2001/02-2007/08
• Collective investments have grown in popularity
  • Figure 18: Total IMA funds under management (FUM) and net retail sales (NRS) in the UK, 2000-07
• Buy-to-let is no longer an attractive investment...
  • Figure 19: Mix-adjusted house prices, all UK dwellings, (not seasonally adjusted), Q1 2000-Q1 2008
• The value of BTL mortgages has trebled since 2003
  • Figure 20: Number and value of BTL mortgages outstanding, 2000-07 (year-end)
• Other alternatives to share ownership
• Strengths and Weaknesses in the Market
• Market strengths
• Growth in the number of online brokers and information sources
• Growing number of wealthy consumers
• Increasing popularity of spread betting and CFDs
• Changes to ISA rules give investors increased flexibility
• Market weaknesses
• Volatility in the stock market undermining investor confidence
• Stretched household finances mean less income to invest
• Investment in collectives rivals trading in individual shares
• Equity investments are seen by many people as too risky and complicated
• Market Size and Forecast
• Key points
• The value of shares owned by individuals has risen 44% since 2002
  • Figure 21: Total value of equity owned (ordinary shares) in the UK, 2000-06
• Stocks and shares ISA subscriptions have levelled off...
  • Figure 22: Stocks and shares component subscriptions into all ISAs, 2001/02-2007/08
• ...with larger increases observed in collective investments
  • Figure 23: Market value of ISA funds, stocks and shares component, as of 5 April, by type of qualifying investment, 2001-07
• Private client trading volumes have fallen since 2000...
  • Figure 24: Volume of UK equity bargains, institutional and private client, 2000-07
• ...whilst CFDs and spread betting are gaining in popularity
  • Figure 25: Execution only stockbroker trading volumes, by type, 2000-07
• In short, direct equity investment is declining...
  • Figure 26: Net investment in UK equities, by mandate type, 1998-2007
• ...with a switch to alternative products seen
• Forecast
• Individual share ownership is expected to continue declining...
• Figure 27: Forecast of the market share of individually-owned equity (ordinary shares) in the UK, 2003-13
• ...while the number of online investors is expected to rise
  • Figure 28: Forecast of the number of online investors, 2003-13
• Factors used in the forecast
• Market Segmentation
• Key points
• Stockbrokers account for a small part of the private wealth management industry...
  • Figure 29: Market share of total revenues within the UK private wealth management industry, by type of company, 2003-07
• ...with a move towards more advice-based investment
• The number of XO trades through online brokers has increased
  • Figure 30: Market share of XO trades, by firm type, 2003, 2005 and 2007
• While in the full-service sector, large firms dominate
  • Figure 31: Market share of full-service stockbrokers, by firm size (in terms of investment assets), 2003-07
• Market Share
• Key points
• The overall stockbroking market is very mixed
  • Figure 32: Most active private client member firms trading within the FTSE 100, January 2007-March 2007
• Market share of spread betting firms
  • Figure 33: Estimated market share of firms in the spread betting market
• Companies and Products
• Key points
• Three different types of stockbroker
• The market has continued to consolidate
  • Figure 34: Number of stockbroker firms, 2000-07
• Turbulent times may suit full-service brokers better
  • Figure 35: Investment assets, by mandate type, 2005-07
• Execution-only brokers seek to encourage frequent trading...
• ...and many have increased their product range...
• ...and used other strategies to attract clients
• Discretionary services have become more popular...
• ...with full-service brokers enjoying higher commissions
• Full-service brokers expanding their range of advice
• Brand Communication and Promotion
• Key points
• £50 million was spent on advertising investments in 2007Figure 36: Advertising expenditure within all financial services, by top-level category, 2004-07
• Overall stockbroker adspend has steadily increased
  • Figure 37: Advertising expenditure within selected investment/asset management* categories, 2004-07
• Barclays is the top advertiser of sharedealing services
  • Figure 38: Advertising expenditure of the top 20 stockbroker* firms, 2004-07
• Internet advertising has grown considerably in recent years
  • Figure 39: Advertising expenditure of stockbroker* firms, by media type, 2004-07
• Channels to Market
• Key points
• Online trading has become the dominant channel...
  • Figure 40: Number of execution-only trades made through external client traders, by channel, 2007
• ...as the number of online clients has grown
• Trading over the telephone is not uncommon though
  • Figure 41: Methods used to buy shares, September 2007
• The Consumer: Product Ownership
• Key points
• Only two fifths of consumers own individual shares
  • Figure 42: Ownership of long-term savings and investment products, July 2008
• Men are more typical equity investors...
  • Figure 43: Ownership of long-term savings and investment products, by gender, age and socio-economic group, July 2008
• ...as are older consumers...
• ...and more wealthy individuals
• Share ownership is more common in the City
  • Figure 44: Ownership of long-term savings and investment products, by region and newspaper readership, July 2008
• Broadsheet readers more prone to investment
• Those with more to invest are generally more involved
  • Figure 45: Ownership of long-term savings and investment products, by value of investable assets, July 2008
• Risk and affordability are the two biggest barriers
  • Figure 46: Barriers to investing in shares and other stockmarket-based investments, July 2008
• Knowledge is key to getting women involved
  • Figure 47: Barriers to investing in shares and other stockmarket-based investments, by gender, age and socio-economic group, July 2008
• Young people just aren't interested
• Less barriers to sharedealing in London
  • Figure 48: Barriers to investing in shares and other stockmarket-based investments, by region and newspaper readership, July 2008
• Broadsheet readers are more receptive
• Opportunity exists for those with up to £30k to investFigure 49: Barriers to investing in shares and other stockmarket-based investments, by value of investable assets, July 2008
• Cash-based savers don't like taking risks
  • Figure 50: Ownership of long-term savings and investment products, by barriers to investing in shares and other stockmarket-based investments, July 2008
• Investment fund ownership may lead to shareholding
  • Figure 51: Cross-holdings of long-term savings and investment products, July 2008
• Potential for broker tie-ups with pension companies?
• The Consumer: Origins of Share Ownership and Methods of Purchase
• Key points
• Around half of shareholders have obtained shares passively
  • Figure 52: Origins/types of share ownership, July 2008
• Advice-backed share purchase is relatively low
• Men are more active self-researchers and buyers of shares
  • Figure 53: Origins/types of share ownership, by gender, age and socio-economic group, July 2008
• Older investors are more prone to seek advice
• Those with more assets are more likely to seek advice
  • Figure 54: Origins/types of share ownership, by value of investible assets, July 2008
• Equity ISA owners are more active shareholders
  • Figure 55: Origins/types of share ownership, by ownership of long-term savings and investment products, July 2008
• Low-cost sharedealing services dominate...
  • Figure 56: Methods of buying shares, July 2007
• ...though traditional brokers still have a role to play
• Active shareholders have fewer reservations towards investing
  • Figure 57: Origins/types of share ownership, by barriers to investing in shares and other stockmarket-based investments, July 2008