Julian Roberts, an analyst at Jefferies, says “it looks quite literally cuddly with furry monsters”.
But he thinks AJ Bell’s move to attract a new generation of investors makes sense.
“There’s a motivation to capture younger investors,” Roberts says. “As people get older they retire and draw down on their savings. They might be more valuable to investment platforms because they pay higher fees but their numbers eventually decline so the only way to fight that is to add new customers.”
He adds that investment firms will be looking to target the “big pool” of young people who have yet to invest, rather than poaching customers from rival platforms.
“There is a lot of inertia when it comes to investment platforms. Once a customer is on a platform it is hard to move them from it,” Roberts says.
AJ Bell is not the only well-established British brand moving into the retail trading market. Abrdn, formerly Standard Life Aberdeen, snapped up Interactive Investor, the UK’s second largest retail platform, for £1.5bn last week as the money manager pivots into personal investing.
Chief executive Stephen Bird said the acquisition will give abrdn scale in high growth direct investing – the fastest growing part of the UK wealth management market.
HSBC is also on manoeuvres in trying to attract younger investors. The Asia-focused bank last week launched a new feature on its mobile app that lets British customers invest in a range of ready-made funds, marking a direct challenge to fintech start-ups.
Challengers vs veterans
Analysts argue the industry’s incumbents have an advantage over upstarts in trying to shake up the market.
Jefferies’ Roberts notes AJ Bell’s existing platform that executes trades and has ample amounts of data they will be able to calibrate to determine the demands of their target market.
“The company’s management has been doing this for a long time,” he says. Bell founded AJ Bell – the J is for James, his middle name – as a pensions business in 1995 and has grown it into a platform managing almost £73bn of investors’ money, with a £1.5bn market value.
Stuart Duncan, an analyst at Peel Hunt, agrees. He says brand recognition and existing technology gives companies like AJ Bell an advantage, while older, wealthier customers will still pay higher fees for the “full fat” version of what investing platforms offer.
Despite his strong quips, Freetrade’s Dodds admits it “takes a long time to build a financial institution” – his company, founded in 2016, has decided to build its software from scratch.
The company’s headcount has doubled in the last year to over 200 as business grows and Dodds predicts it will do so again in the next 12 months, with a focus on hiring software engineers to enhance its offering.
There is space to expand. Robinhood, which pioneered commission-free trading, decided to scrap plans to launch in Britain last year, opening the market for new players.
Freetrade has succeeded in adopting some of Robinhood’s tactics and has reached milestones in recent months of more than one million users, and £1bn assets under management. The company expects to move into every country in the European Economic Area by the end of next year.
When it comes to stock market listings, Dodds says the “natural home” for Freetrade, which is seeking a £650m valuation in its latest funding round, will be on the London Stock Exchange, but that is still “years down the line”.
“A lot of companies [listed] a bit early, we don’t want to do that,” he says. It would be tempting, given Robinhood made a $32bn (£24bn) market debut in New York earlier this year.
Ultimately, Dodds, a former KPMG auditor, says he is not worried about AJ Bell encroaching on its territory.
But Roberts thinks he should be. The analyst says “AJ Bell hasn’t made a virtue of looking over their shoulder, they seem a step ahead of everyone else. I think it will be difficult for Freetrade to go toe to toe with Dodl.”
Let the battle for Britain’s young investors commence.