From free share trading apps to the deep pockets of the blue chip incumbents and new players seemingly entering the market every month, competition has never been fiercer in online wealth management.
Many companies continue to burn through millions, but Charles Stanley Direct, led by managing director Magnus Wheatley, reported that it had moved into the black last month, five years after launch.
The execution-only platform made a profit of £200,000 on revenue of £3.5 million, up 34.6% year-on-year over the six months to the end of September. It now administers £2.6 billion, equivalent to 12% of the national wealth manager’s total assets, and has emerged as an important driver of growth within the business.
But even despite this progress, in September, the company felt it had to buck the trend of falling fees and raise its charges if it is to be able to fund and build the additional services it wants to offer clients.
Its platform fee was lifted from 0.25% to 0.35%, and Wheatley says this reflected the economic realities of operating in an industry where the cost of doing business is constantly mounting.
‘We want to do things to improve the service, such as the security and the app, but we need to fund that. We did a very good job of explaining that to our clients and, yes, there was attrition, but it was less than we had anticipated. We had modelled 5% attrition, but it was less than 1%. You are so nervous when you do it, but we can’t as a business keep losing money on it,’ he says.
‘As an industry, we have to be careful with the race to the bottom. We’re trying to offer a safe, secure investment platform and there are costs to that, even though we are trying to automate as much as possible.’
Wheatley admits that few can compete with the resources of the likes of FTSE 100 giant Hargreaves Lansdown or US asset management behemoth Vanguard, nor the marketing spend of some of the well-funded robo advisers.
At the same time, there is continuing pressure on fees, as Fidelity expands the range of zero fee tracker funds it offers, while the rise of free share trading apps, such as Freetrade and Robinhood, is posing a new threat, attracting younger investors, in particular, in droves.
One area all propositions can compete on is, of course, service.
‘The market is so competitive. You have everything, including start-ups that are venture capital-backed offering free share trading. You have the likes of Hargreaves Lansdown, Nutmeg and Barclays which are spending eye-watering sums. The review sites do a lot of work for us because we get recognition for the service we provide,’ he says.
‘Nutmeg’s usability and website is wonderful, but then you see their figures at the end of the year and wonder if it is sustainable. We do our own thing. We know a lot of our customers personally, which you won’t get with Hargreaves. We need to find our own niche.’
Part of that is through the range of investment options Charles Stanley Direct offers. Besides the execution-only service, the group also provides a number of in-house managed fund ranges, including its risk-graded multi-asset Investment Choices portfolios, as well as its Foundation Funds proposition.
The offering was expanded earlier this year to include five environmental, social and governance managed (ESG) funds, with two ethical portfolios set to be introduced in the new year.
But what really excites Wheatley is the development plans he has to improve the proposition and appeal to a broader range of clients, including the widely sought after millennials.
Charles Stanley Direct upgraded its app last year to offer more in-depth fund and stock research functionality, and incorporate both facial and fingerprint security authentication. The app got a further enhancement in June which enabled clients to trade funds through it. A share dealing capability, along with push notifications and the ability to open new accounts, are set to be added by the end of the first quarter.
Further developments to the broader proposition, both at the front and back end are in the pipeline, with Wheatley stressing that the process is constantly ongoing.
The key is, he says, to build for the future, not for the now.
‘Augmented reality 4D share price graphs like something out of Star Wars? Where does it go from here? What does the millennial investor in 2030 look like?’ he asks.
‘What will AI look like in the future? If you look at the likes of Google and Apple, they use it extensively for marketing and customer service. Apple’s chatbot is so good that you don’t know it’s a chatbot until you ask it a silly question.’
He adds: ‘In the industry we have done a pretty good job to date, but it’s not a business that stands still.’
In a restructure, the platform’s 25-strong helpdesk team has moved down from Edinburgh to London, but Wheatley is also keen to automate more processes, particularly around administrative tasks.
The firm updated and expanded its FAQ section last week to help more people solve minor problems, like forgetting their password. Further developments include plugging into Altus’s Transfer Gateway technology next year. This will let clients seamlessly transfer in cash ISAs, but slick as it is, there are a number of processes that still require manual input.
‘Altus Gateway, which we’re bringing on board next year, works for cash ISAs, but you need human intervention on in specie stock transfers, there is a lot of administration involved in transferring Sipps,’ Wheatley says.
‘Where it gets particularly complicated is when you are transferring a Sipp from Hargreaves Lansdown and they’ve been able to negotiate a different share class because of their scale. That needs a manual generation.’
Further down the line is the possibility of Charles Stanley Direct incorporating an advice proposition online. Currently the platform is able to cater to both large clients who prefer an execution-only service and smaller clients who it is hoped can in time move up the value chain and receive financial planning and discretionary investment management.
The online service could, however, act as an alternative route to offering financial planning to those who do not want to operate face to face.
‘I would like to plug financial planning into Charles Stanley Direct. Our clients are on a wealth journey and they can realise that if their financial situation changes, they can move up into financial planning if they want it.
'There obviously needs to be a financial floor, but I can see it being a rich vein. We have some people with huge accounts. Going from execution-only to financial planning is a big leap, but you can talk about markets and funds first,’ he says.
‘But if you push clients to take advice, you don’t get a good response. A lot of people have chosen to be execution-only for a reason.’