The last 12 months has been a bumpy ride, but strong growth in 2020 has been the silver lining for the direct to consumers (D2C) investing market. New customers have poured into D2C services like AJ Bell Youinvest, Hargreaves Lansdown and Vanguard Investor.
The state of the economy, rising unemployment and changes to individual circumstances have driven people to examine their financial wellbeing. AJ Bell CEO Andy Bell described the Coronavirus pandemic as a life event equal in impact to a wedding or even buying a house. Those of us working at home have saved on (the old) normal working day commuting and other expenses sending the household savings ratio soaring to record highs.
Stories in the media about buying shares on the cheap have enticed a younger, less experienced cohort of investors to take speculative positions. Several D2C firms have reported many self-directed newcomers buying shares – often in just one company – as their first investment.
D2C providers now make most of their income from longer term relationships with investors rather than in and out punters. So, the challenge for them will be to convert the gambling mind-set of new quick-win clients to a more distant horizon – from the thrills and (mostly) spills of Reddit-GameStop towards a more mundane, stable, long-term approach. Part of the answer will lie in providing really engaging guidance, because the chances are that they don’t have enough money to attract the attention of financial advisers.
This rush to buy shares direct is by no means a brand-new trend. D2C providers tell us that they’ve seen similar patterns in previous years. COVID has merely acted as an accelerant, or time machine if you will. Two questions remain:
- How successful will D2C providers be at keeping these younger, inexperienced investors?
- Will the trend persist post-pandemic at the same pace?
We will be publishing our UK D2C: Market Overview report next week, exploring dynamics of the most bizarre year the industry has faced since we started covering this market over 10 years ago.