With the race towards providing the most effective digital proposition never ending in financial services, The Share Centre chief executive Richard Stone is looking at alternative routes to increased client volumes.
When he took over as chief executive at the execution-only platform three years ago, he stated he wanted to hire people from a retail background, not financial services. He kept his promise, recently bringing on the IT director from Tesco and the finance director from travel group Thomas Cook.
He says: “To be successful we’ve got to be more like a retailer.
“We’ve got to have a deeper understanding of the customer, particularly as you move down the generations. We’ve taken that lesson from the retail sector and applied it to financial services.”
And Stone has more retail sector-inspired plans for The Share Centre, looking to e-commerce giant Amazon for ideas on how to help users identify the right product from them. “Imagine you are a new investor coming to market and you have £100 cash savings. You come to our website and see that so many funds are out there with difficult names, and you cannot decide what to do. We help with some of that navigation but it is still a daunting choice.
“When someone wants to buy a fund, I would like to include a list of what other investors have bought; what else they have in their portfolios. But is that advice?”
He argues there should be a better way to narrow down the choice that is out there for investors.
“There is a brilliant TED talk about choice. The speaker gives an example of a store in the US that served 2,000 different types of olive oil. But while people came just to see that amount, it did not sell much. The hypothesis was that customers turned up, saw all the choice, then could not make a decision because they could not judge what was better than the other.
“The store narrowed its range down to 12 in a defined space within one isle, and its sales of olive oil went through the roof.”
On product choice, Stone has seen the appetite for ETFs grow quickly on the platform. However, he is not convinced other products such as model portfolios would fit.
“I don’t like the idea of model portfolios in an execution-only space. First, you need to question whether that provider is putting their funds and products in that mix.
“In an execution-only environment you buy that portfolio, you get that mix of funds and it is fixed. But two years later your risk profile might be completely different. Nobody is managing that for you and you can’t rebalance.
“There is a big disconnect between what the customer expects and what is actually going to happen. But we haven’t been around long enough to see that fallout.”
New products abound in financial services but Stone argues that, more often than not, their appeal does not match what a customer is really after. He says the problem is a lot of providers will not accept that.
“If the customer does not want to buy the product, the industry views it as if they just need a bit more education. The fault always seems to be on the part of the customer. It is as if they just need to be hit on the head a little harder until they realise they need it.
“With any other retail type of product, it would be taken to the drawing board to try and work out why it wasn’t selling.”
We’ve got to have a deeper understanding of the customer, particularly as you move down the generations. We’ve taken that lesson from the retail sector and applied it to financial services.
So what of the newly launched Lifetime Isa, which has only been offered by a handful of providers, including The Share Centre?
Stone believes the product is “a great idea” as it encourages investors to save for the long term and offers a lot of benefits over the pension. “Ultimately, as long as you don’t come out of the Lifetime Isa, it gives you a degree of flexibility a similar product doesn’t.”
He argues the reason other providers are not yet out there with the Lifetime Isa is because it does not look commercially attractive to them. Many remain in a wait-and-see mode.
But while the product might not turn a profit in the short term, Stone is still willing to support the Government if it thinks it is good for consumers.
“As a mass-market provider you can’t not have a product like the Lifetime Isa. But if you are a wealth manager why should you offer it? We don’t look at profitability by a target-to-target base. We pride ourselves to provide the same service to all people.”
The Share Centre has somewhat evolved since it sponsored shares through coupons in the papers in the 1990s. It now manages around £4bn. So what next?
Stone says the business model is unlikely to change. The firm wants to continue to get traction on its custody and transactional services and grow both organically and through partnerships to acquire different sets of clients.
“We have got two-and-a-half times our regulatory capital, we have no debts and most of our assets are in cash. We want to grow in size by at least double over the next five years. That is a very compelling argument, especially in terms of how our flat fees play out.”
Stone does not aspire to the models of Hargreaves Lansdown or Nutmeg, and does not fear the likely success of US provider Vanguard’s “interesting” entry to the direct-to-consumer market.
“We do not have any aspiration to move into vertically integrated models at all. We want to be an independent provider and Vanguard opens an opportunity for us as it will be offering just its own funds, which is different from what we do.”
What is the best bit of advice you’ve received in your career?
To be confident and bold – and remember everyone else is human too. If you’ve got a great idea, tell the chief executive. They won’t bite. In fact, you may have just come up with the idea that’s going to make your company fly.
What keeps you awake at night?
Cyber security. It doesn’t matter how technically advanced you are, there are a significant number of people trying to launch attacks on businesses on a daily basis. If successful, they could do serious harm to customers and the industry as a whole.
What has had the most significant impact on financial advice in the last year?
The debate between active and passive management and the emergence of new entrants into the low cost fund or ETF space.
If I was in charge of the FCA for a day I would…?
Focus on better understanding the impact regulation has on the customer.
Any advice for new advisers?
Put the customer at the heart of all you do. Communicate with them openly and honestly, and in the simplest way possible.
2014 – present: Chief executive, The Share Centre
2006-2014: Group finance director and chief operation officer, The Share Centre
2003-2005: Finance director, Huntswood
2001-2003: Group financial controller, ECsoft
1999-2000: Equity research analyst, Robertson Stephens