Retail investors boost private client stockbrokers
THE surge of retail investors rushing back to equities in recent months has become a flood since London’s benchmark FTSE 100 index broke through the psychologically important 5,000 mark on 9 September.
This represents a massive opportunity for private client stockbrokers, many of which have seen a boost to both client numbers and to the volume of transactions. People who had never considered investing in the stock market before are beginning to call their local stockbroker. The reasons behind this are clear. The 45 per cent recovery in the main UK indices has proved an enticing carrot for small investors, there is also a stick driving them back to equities in the form of zero returns from cash savings. Once the impact of inflation is taken into account, returns on cash deposits are languishing in negative territory, making the lure of buoyant share prices too much to resist for many investors. One asset manager this week even referred to this pent up demand as a “wall of cash” as investors seek income-earning assets.
Such opportunities for growth mean any well-positioned retail house should be on track for growth in assets under management of 20 to 25 per cent this year, as one private client broker told me yesterday.
With more than 12m people in the UK investing directly in stocks and shares already, the £400bn of wealth being managed by the member firms of the Association of Private Client Investment Managers and Stockbrokers could easily turn into a tidy £500bn by the end of this year.
Patrick Claridge, chief executive of Merchant Securities, likens the current enthusiasm for equities among retail investors as a “sugar rush”. Claridge explains the broker has seen a resurgence in equity trading since March with transaction volumes up by 30 to 50 per cent and a surge in the amount of funds being invested.
Over at Killik & Co, adviser Hannah Edwards agrees. She said: “We are seeing a big influx in new clients who have been sitting on the sidelines for 12 to 18 months. Some investors who switched into cash in the summer of 2007 or have been accruing lump sums are now feeling – and have been feeling since April – that they want to be feeding money into equities.
“But we are also seeing the next phase of disbelievers being converted, there just seems to be a huge amount of investors from original people to some of the cynics. Many investors are comfortable with having missed out on the first 15 to 20 per cent of a recovery.”
With that in mind, the short-term prospects look good for retail stockbrokers, even amid talk of a correction in equity markets. Seven months into the current rally, private client brokers insist there remains a long way to go yet before retail investors will feel worried about a major pullback in share prices.