According to the Fundscape report released today, 2023 was a second tough year for the direct investment platform market.
Headwinds buffeted the market and consumer confidence took a pummelling from news of the Israeli-Hamas war and rampant inflation prolonging the cost-of-living crisis. Despite the wall-to-wall gloom, markets performed strongly in the final quarter, taking total direct market assets to £320bn and giving platforms a welcome boost to revenues. Hargreaves Lansdown, interactive investor and AJ Bell were the fastest growing platforms this year with Hargreaves Lansdown adding the equivalent of the industry’s annual net sales in assets.
Sales, however, painted a bleaker picture. Gross and net flows trended downwards quarter on quarter, hitting their lowest point in in the final quarter (historically the slowest for flows). Not only did investors have less disposable income, but they also raided their ISAs and GIAs to meet living costs, pay down mortgages and help family members. Annual gross and net flows were just a whisker short of £40bn and £11bn respectively. Hargreaves Lansdown had the highest gross sales (£12.6bn) while interactive investor topped the net sales table with £3.3bn.
Looking back over the past five years, gross flows of £40bn were the second highest in five years (2021: £45bn). Net flows for the year stood at £10.7bn, and while they were only 12.2% down on 2022, they were still just a third of the £27bn of net flows recorded in 2021. Recovery is still a long way off and platforms will be deploying all sorts of promotional offers to win new business in 2024.
Competition for customers, especially when it’s fuelled by cashback incentives, tends to favour those with the deepest pockets. However, one platform that is worthy of mention is InvestEngine. It has trebled assets in a year and was fifth for net sales in the fourth quarter of 2023. InvestEngine’s January launch of a Sipp will likely lead to a surge in sales.
Bella Caridade-Ferreira, CEO at Fundscape, said, ‘Consumer sentiment is easily damaged and can take time to recover, but it is the principal driver of flows in the direct market. Everyone is looking for any signs of improved economic outlook and easing of inflation that will help that recovery, and hopefully a return to the higher levels of flows seen in previous years.’
‘The ISA season usually sets the tone for the rest of the year so a good ISA season will boost the industry no end, but a bad one could lead to further closures and/or fire sales. 2024 will be predicated on interest rates coming down and cash no longer being such stiff competition.’
