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Discounters set to feel bite from falling business

Plummeting trail commission and a dive in new business volumes are set to throw many of the newest discount brokers into financial crisis this winter.

Poor market conditions over most of the last two years have started to eat heavily into trail revenues, while a fall in advertising by fund managers combined with low investor confidence have created a drought of new business in recent weeks.

The problems may be exacerbated by the fact that fund managers calculate trail in several different ways, making fut-ure revenue difficult to predict.

A wave of negative publicity surrounding the transparency of Isa guides earlier this year has also thrown the success of any forthcoming discounter guides into doubt.

The discount broker market has expanded quickly over the past three years, with many of the newer firms holding the bulk of their assets in technology-based funds or other former favourites which have since fallen in value.

BestInvest deputy managing director Jason Hollands says many discounters will not yet realise the full extent of the recent poor market conditions. He says: “Some of these businesses may not be aware of how deep the trail has been impacted. A lot of businesses simply record the value of the investment at the point of sale and only have a vague idea of assets under management. I think there will be some consolidation.”

HCF Partnership partner Richard Craven says: “This will be a good thing for our industry. It is a sector which over the past two years got crowded with people who thought they could make a quick buck. Some of those will now have to drop out. I agree with the regulator. The quality of a lot of the Isa guides left a lot to be desired.”

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