Execution-only brokers' business hits 10-year-high - 08.06.2009
Wealthnet
Amid the global rally by stock markets, execution-only brokers in the UK saw their highest number of client trades in the first-quarter of this year since 2000, helping to maintain the sector's profit margins, new research shows.
By contrast, the advisory and discretionary wealth management sector saw revenues erode in the quarter, according to new analysis for the first three-months of 2009 by wealth industry trackers ComPeer.
It found that opening quarter showed "exceptional continued growth in trade volumes, especially those transacted by execution only firms...."
Individual investors are consistently gaining in confidence in recent months and are now more often making their own investment decisions, for which the majority are to buy into the market, ComPeer observed.
In this quarter alone, close to 5.7 million trades were transacted in total by UK retail stockbrokers, up 11 percent on the previous quarter. Of these, 3.5 million were by execution only firms, an increase of 1.1 million on the equivalent quarter last year, and 400,000 higher than the fourth-quarter of 2008.
This is the highest number of client trades by execution only firms in a quarter since the first quarter of 2000, ComPeer noted. This growth is also spilling into the second quarter of 2009, with cash market bargains in April above 1.5 million – a new high. As a result the execution only firms have been successful in maintaining profit margins above 25 percent.
For advisory and discretionary wealth managers, the results have been less rewarding, ComPeer reported. For these firms there is a greater reliance on funds under management and investment management fees.
"Therefore when advisory funds reduce by 6.2 percent and discretionary funds drop by 5.9 percent, as they did in the quarter, there is a significant impact on the revenue of these firms," ComPeer observed.
Total revenue for the wealth managers (excluding execution only firms) decreased by 5.3 percent from £929 million in the final quarter of 2008 to £880 million in the opening quarter of this year, it calculated.