Remember the Iceland football team that sent England packing at Euro 2016? The Scandinavian minnows might have given Interactive Investor’s Adam Seale some ideas.
The chief executive, who has followed England to all of its World Cup campaigns since 1990, is now orchestrating the reverse takeover of TD Direct Investing – a company four times the size of his – to create what will be the UK’s second-largest direct platform by assets.
Over breakfast at a Liverpool Street brasserie we discuss his part in the long talked about platform consolidation. As might be expected from someone who went from Cambridge to the Bank of England, he tells me about economies of scale and scope; getting efficiencies from a single technology platform and making the brand “louder”.
Having been a partner at consultancy firm Booz Allen Hamilton when it was sold to Carlyle in 2008, Seale wanted to buy into and run a share dealing company. This ambition was realised when he was confirmed as chief executive of Interactive Investor in 2013, after taking up the role on an interim basis in 2012.
Between those two companies, however, he worked on the retail board at HBOS, joining just as the credit crunch began. After the takeover by Lloyds TSB he was responsible for the high net worth segment at Lloyds Banking Group and HBOS Employee Equity Solutions. The sharesave scheme was sold to Computershare with a million employee shareholders on the books. This left Seale looking to work with end investors and on the hunt for an opportunity to create a consumer champion in retail investing.
Following the TD acquisition, the new combined entity will be called Interactive Investor and, while no decision has been taken on pricing, Seale is a firm believer in the fixed price model. The platform currently charges £20 per quarter (which includes two trades) regardless of whether funds, shares or other listed securities are held.
While most competitors charge a percentage of assets held, fixed annual charges have been adopted by several platforms in recent years. Alliance Trust Savings has always done it and was the first to offer it to advisers. In the self-directed arena, it has been joined by the Share Centre as well as Interactive Investor.
Seale says: “A flat fee is right for execution-only because negative compound interest damages investor wealth. Percentage-based charges eat into investment returns and people don’t realise it’s happening.”
He accepts, however, that this does not preclude other options: “I can see a case for having a different structure for advised and discretionary services when choosing investments is involved.”
Seale acknowledges it will take time for awareness of how fixed fees can save money, especially for larger portfolios, to permeate the consumer conscience. We will see this year if momentum builds when the model is offered by a scale player.
“Percentage-based charges eat into investment returns and people don’t realise it’s happening.”
Putting scale to work
I put it to Seale that at its current size (it recently tipped the £4bn assets under administration mark) Interactive Investor might have been unsustainable without the acquisition. He disagrees.
“We would have continued successfully but it would have taken much longer to reach the necessary scale and efficiency. With the acquisition we get there in one leap,” he says.
Is this the first of many acquisitions? Seale insists it is too early to say but believes further consolidation in the sector is only a matter of time.
The acquisition is backed by JC Flowers: a heavyweight global private equity company specialising in financial services. It will not be the first time a US investor has acquired a UK platform as a vehicle to build a vertically integrated wealth company. Permira’s acquisition of Bestinvest in 2014 was followed by Tilney, Ingenious Asset Management and Towry.
Seale says it is also too early to tell whether Interactive Investor will offer financial advice or discretionary services in future. The priority, he says, is to make this acquisition work.
Technology will be a focus, with Seale confident it will have an immense role in broadening the reach of investing in the UK. Interactive Investor has a heritage of innovation going back over 20 years to the earliest days of providing online information for investors, virtual portfolios and discussion boards.
Those discussion boards attract almost half a million posts annually these days, and the company received the Platforum Best D2C Proposition for Innovation 2016 award based on the strength of its mobile proposition and its social media presence.
Seale has his opportunity to shake up retail investing, having leapfrogged all his competitors, barring the omnipotent Hargreaves Lansdown. He says his favourite World Cup was Italia ’90, which famously ended in Gazza’s tears. But Seale will be hoping for a very different outcome from the TD acquisition more akin to Iceland’s giant killing successes.
Jeremy Fawcett is head of direct at Platforum
2012-present: Chief executive, Interactive Investor
2010-2011: MBI opportunity development with private equity backing
2009-2010: UK high net worth director, Lloyds Banking Group
2008-2009: Managing director, specialist banking, and member of retail board, HBOS
1990–2008: Partner, head of financial services UK, Booz Allen Hamilton (Booz & Co)
1983–1990: Various roles in banking supervision and money markets divisions, Bank of England