Moderate

Brokers & Asset Management

For the past 18 months, brokers and asset managers have benefitted from increased aggregate household saving rates, increases in trading activity and the continued growth in equity and asset prices.

Sector trends & challenges

  • Increased saving rates

    Household savings rates hit record highs of 25.1% in Q2 2020 and the rate was still 19.9% in Q2 2021, well above the historic average of c.6%. This, alongside a spike in online investment content and the “gamification” of the market has fuelled growth in the sector.

  • Wider economic pressures

    The sector is vulnerable to macroeconomic stress, as highlighted by China’s recent historic crackdown on tech. The likes of Robinhood show the potential for disruption but equally the risks associated with new business models and regulators trying to play catch up. Whether recent growth is due to one off COVID events or new long-term trends remains uncertain.

  • Passive investment growth

    There is a gradual shift from actively managed to passive investment funds, which have been shown to beat active funds 91% of the time net of fees. In fact c.54% of the world’s largest market (US) is in the form of passive funds.

Sector rating profile

The sector is currently under less stress than for several years, as COVID-19 has resulted in renewed interest in savings and investment products to consumers. With saving rates continuing to be high throughout 2021, and retail investor appetites remaining strong, the sector should continue its current upward growth trajectory.

Brokers & Asset Management

The sector has performed well since the pandemic began and continues to do so as we approach 2022. Savings rates reached record highs during the first lockdown and continue to remain high in Q2 and Q3 2022. In addition, the current ultra-low interest rate environment means many consumer investment products have attracted strong demand, particularly with the recovery in stock markets since COVID-19 first struck. As at September 2021 the S&P 500 is up a staggering 95% from the pandemic crash.

However, there are a number of challenges, both in the near-term and longer-term that need addressing:

Rise of passive investing. There has been significant growth in the popularity of passive investing – often appearing to offer similar returns to investors as active fund management whilst reducing operating costs. In this more commoditised environment, fees and innovative features are of growing influence for consumers.

Continued downward pressure on fees. Businesses that are not able to cut their cost base and transition smoothly to new technologies will struggle as new fintech players continue the downward pressure on fees. Freetrade for example are approaching 1 million users.

Regulator scrutiny. Regulatory bodies continue to scrutinise the operating practices and funding requirements of operators.

“Fad” investing. New investment types, such as cryptocurrencies, and the GameStop events, continue to attract significant media attention. Whilst some of these appear to be here to stay, operators looking into this space need to carefully evaluate the significant risks.

Find Your Expert

Ed Boyle and Nick Smith are joint Sector Leaders at Interpath for FS overall, supported by an experienced senior team. This team tracks four key sub-sectors including the Brokers & Asset Management segment. As part of the FS expert team Rob Spence leads our approach to Brokers & Asset Management nationally.

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