XO Firms Benefit From Excellent Volume Growth

The main story to report for the first quarter of 2009 is the 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. In this quarter alone, close to 5.7 million trades were transacted in total by UK Retail Stockbrokers, up 11% 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 Q4 2008. This is the highest number of client trades by execution only firms in a quarter since the first quarter of 2000. 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%.

For the advisory and discretionary wealth managers the results have been less rewarding. For these firms there is a greater reliance on funds under management and investment management fees. Therefore when advisory funds reduce by 6.2% and discretionary funds drop by 5.9%, as they did in the quarter, there is a significant impact on the revenue of these firms. Total revenue for the wealth managers (i.e. excluding execution only firms) decreased by 5.3% from £929m in Q4 2008 to £880m in Q1 2009.