Interactive Investor’s determination to take the DIY investing fight to the UK’s leading platform Hargreaves Lansdown was signalled again today.
An announcement confirmed Interactive Investor is buying rival The Share Centre for £62million.
The attraction for Interactive Investor is adding yet more customers to its burgeoning investment platform, which in recent years has added Alliance Trust and TD Direct customers to its stable.
But what does the Share Centre deal mean for that platform’s investors and will consolidation bring better services and keener prices for all? We take a look.
Investing platform Interactive Investor has confirmed it is buying rival platform The Share Centre for £62million
The Interactive Investor and Share Centre deal
Under the £62million deal, The Share Centre investors will receive 41p in a combination of cash and shares, which is a 41 per cent premium to its closing price of 29p last Friday.
Their shares will be in the unlisted Interactive Investor (II) company, which it said was unlikely to list on any stock exchange within the next 12 months. The combined business would be worth £675million.
Interactive Investor said the merger was needed to ‘sustain the level of profitability’ needed to keep investing in the platform’s technology amid rising competition and that there is a ‘strong strategic rationale for consolidation among compatible groups’.
Interactive Investor is adding yet more customers to its burgeoning investment platform
Will this increase competition for customers?
One less competitor in the marketplace would not normally indicate competition will increase, but the new combined Interactive Investor and Share Centre business will have more muscle and that could be good news.
Commenting on the news, Bella Caridade-Ferreira, of research house Fundscape and comparetheplatform.com, said: ‘Consolidation is inevitable because the cost of acquiring clients through advertising and the cost of providing a rich seam of resources and guidelines as well as access to to a wide array of investment wrappers and funds, are significant.
‘This is good news for The Share Centre customers who will get an overall better, more cost effective service. It also gives customers real choice to have several large players like AJBell Youinvest, interactive Investor and HL competing for their business.’
The news comes amid increasing scrutiny over investing platforms lately, particularly around costs and transparency for customers.
It is also less than a year since II acquired Alliance Trust Savings, which saw £9billion of assets migrate from ATS to II in October 2019.
II Group now boasts over £30billion of assets under administration, over 300,000 customers and more than one million users, while The Share Centre has £5.3billion assets under administration and over 300,000 accounts.
How will the merger impact customers?
For II customers, there is likely to be very little impact, if any, and for The Share Centre customers, it should be business as usual in the short term.
Investments are still protected and safe, and customers will be able to invest and trade as per normal while the transition takes place.
Over time, the ownership will change to II, meaning from a technical point of view, The Share Centre customers will eventually move to a different system.
Holly Mackay, founder and chief executive of Boring Money, said the main challenge will be about service, though II’s flat fee model should help retain customers.
Boring Money’s Mackay said ii’s main challenge post merger could be on service
She said: ‘The Share Centre still has a “smaller feeling” about it and the staff who take the calls seem to have a lovely way with their customers (who are still more reliant on phones than other competitors with younger audiences.)
‘I think there will be a number of customers resistant to the different online environment and a slightly bigger corporate feel from the call centre and service teams.
‘When the Alliance Trust Savings customers were migrated into the II service last year we heard some grumbles about the service and website from these customers.
‘Nobody likes change – and so the challenge is for II to convince people to stay and not to shop around. Given that those customers who choose a fixed fee model tend to do so very purposefully, I should think most people will stay with them for that reason.’
What about fees?
Though II have yet to confirm this, it is likely that The Share Centre customers will see a change to their fees. This was the case for former ATS customers, who were moved onto II’s flat fee of £9.99 per month following its acquisition.
Mike Barrett, consulting director at The Lang Cat, said as there is a precedent, he expects this merger to follow the same path.
The Share Centre currently offers investors a full DIY choice in its Self Select Stocks and Shares Isa. It allows investors to hold funds, investment trusts, shares, ETFs and corporate bonds, for a flat monthly fee of £5 – so £60 per year.
Interactive Investor also follows a flat fee model, which was introduced early last year and includes three subscription plans involving a monthly fee, which replaced its quarterly charging structure from June.
The first option, dubbed the ‘Investor’ plan, levies a monthly subscription charge of £9.99 on top of £7.99 per trade for UK shares, ETF, investment funds and trusts, with one free trade per month.
The second option, the ‘Funds Fan’ plan, costs £13.99 per month but boasts a reduced trading fee of £3.99 plus two free fund or investment trust trades a month.
The third and final option, the ‘Super Investor’ plan, costs £19.99 per month and also charges £3.99 for UK share, ETF, fund and trust trades. Its bumper subscription price is down to the discounted cost to trade US shares of £4.99 in contrast to £7.99 for the other platforms.
Meanwhile, other international shares also cost £9.99 – £10 less than the price levied in the other two plans.
Barrett added: ‘The fixed pricing element that II offers does make them very price competitive for larger investors, and I would expect this is something they will continue to highlight.’
Will other platforms and their customers be affected?
Following the acquisition of The Share Centre, the combined assets will give II approximately £36billion assets under administration, which according to Mackay, is a market share of about 14 per cent.
She added though this means II will jump ahead of other rivals in terms of size, it is still relatively small compared to the dominant Hargreaves Lansdown.
Barrett added: ‘II have historically attracted a slightly different customer to Hargreaves Lansdown.
‘Their focus on trading functionality, wide investment range (ETFs, equities) and keen pricing makes them attractive to more experienced investors, whereas Hargreaves Lansdown’s typical customers tend to invest and hold funds.’
‘The Share Centre are a relatively small provider, so I don’t think the medium to large providers such as AJ Bell and Fidelity will be too concerned with this acquisition. It does, however, serve to show just how hard it is to grow your business within the direct-to-consumer investing market.’
Meanwhile, Caridade-Ferreira said a customer’s decision on which platform to use should not just be about who offers the cheapest fees.
She said while certain names will always come up as the cheapest option when comparing platforms, they are not necessarily right for the novice investor.
‘Somewhere like iWeb might be good for the sophisticated investor but not for someone who wants to learn and make use of research,’ she said.
‘Likewise, Hargreaves Lansdown or St. James’s Place may be more expensive than others, but they’re brands that offer a great personalised service which gives people the reassurance they need.
‘Ultimately it is about which service is right for you.’
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