UK retail investors are on the move – everything is about to change

An opportunity this big comes just once in a business lifetime.

How we Brits invest our money is on the brink of such radical change that the industry will be shaken to its core.

Like a T. rex heading your way, a first slight vibration is dismissed. A bit later, the ground starts to wobble. Sensing danger, you start to panic. But before very long, chew, gulp…it’s all too late.

Unlike in the United States, where first year employees are given a 401K retirement plan and told to get on with it and figure it out, we in the UK have historically been channelled into fluffy high priced and opaque funds and schemes. The fees have been so high, the industry gobbled 50% or more of everything we made.

The more savvy US investor rapidly took to Exchange Traded Funds (ETFs) when they were introduced around 2000. ETFs offered exposure to thousands of bonds and stocks for a fraction of the price of an active fund. They offer such value that they now attract $1 for every $2 invested.

Slight tremor

The Retail Distribution Review (RDR) in the UK, put paid to fund trail commission payments to financial advisors, breaking the old cosy model whereby IFAs were richly rewarded to direct client money to overpriced funds.

Another vibration

MiFID II, coming in January 2018, will require the funds industry to clearly disclose their fees in one inclusive number. Nowhere to hide any more.

ETFs in the UK now have assets of £250 billion which are forecast to rise to £500 billion over the next five years. Ironically the wealth and funds industry today hold nearly all of them.

Big Wobble

Earlier this year Vanguard, the low-cost US mutual funds company, launched a very low cost direct to retail platform in the UK.

Retail uptake of low cost ETFs is forecast to rise from next to nothing today to 25% of the market, as UK investors begin to understand the benefits of investing in ETFs rather than active higher priced funds.

Gulp

Equiniti Selftrade, touching half of the UK population, launches the ETF Centre in July 2017 – a direct to retail ETF platform featuring the ‘best of the best’ of low cost ETFs from all the providers.

Billions will flow in coming years into ETFs directed by retail investors. He who gains their trust and confidence and helps this transition will truly cause the ground to tremble.