AJ Bell Securities has grown since it was founded in 1995 from a small two-man operation to a financial firm with £26.1bn of assets under management. The impressive growth, which founder and chief executive Andy Bell describes as a ’21 year overnight success story’, has been partly down to the firm’s decision in 2007 to buy a small Tunbridge Wells brokerage.
Mr Bell said: “When the company was founded it was a small actuarial consultancy, which had been my profession prior to going it alone.
“It was just myself and Nicholas Littlefair in a 149 sq ft Manchester office funded by £10,000 of personal loans.”
The company quickly evolved into providing financial products such as SIPPs (self-invested personal pensions) and was the first firm to offer an execution-only version online.
But it was still relying on the infrastructure and services of other brokers to carry out share dealing for their clients.
To remedy the situation, the company scouted around for a small, but well established, stockbroker to bring into the firm and allow it to expand its range of financial services.
Transformational
“We were looking for the right sort of broker and came across Tunbridge Wells – based Lawshare. It was small, with only about 27 staff, but we realised it already had many of the things we required.”
Buying Lawshare in 2007 was a ‘transformational’ experience for the company, explained Mr Bell.
He said: “It was not the biggest deal we have made in terms of cost but it has made the biggest difference to our business model. It really was a transformational acquisition.”
By purchasing Lawshare, and growing the broker-age to the 120 staff currently employed, the newly named AJ Bell Securities had given itself access to an entire range of financial services and asset classes.
In this sense, AJ Bell now straddles a ‘broad church’ of financial services, giving clients the option to invest in shares, funds, property and other assets, as well as publishing financial information.
But Mr Bell is always looking for the next step in the market, which he believes is a client-segment in the ‘DIY’ sector of the market – those who manage their own affairs – described as ‘hungry for help’ or ‘nervous newcomer.’
He explains: “The market catering for confident self-investors is now quite mature and saturated so is not offering growth opportunities.
“But a study by Deloitte has identified between two and five million people who would be disenfranchised from financial advice but are unsure of how to become DIY investors.”
However, unlike the Deloitte report published in 2013, which predicted these people would soon flock to the market after numerous government initiatives to make it easier, the influx has not been forthcoming.
“It has been more of a trickle,” said Mr Bell. “But providing the tools for these investors is what we aim to do. It will not be ‘advice’ as such but guidance. The firms which capture this market will grow.”
Current events will not make this task any easier, as market turbulence means at the moment many investors are ‘unsure which way to turn’ explained Mr Bell.
“What we tend to find in unsteady markets is people going to ground. People are running scared of China and developing markets. There is a herd instinct.
“But it doesn’t take much for them to start investing again. Today’s bad news is tomorrow’s buying opportunity.
“It seems gloomy at the moment but people forget very quickly.”
The nature of the way people invest has also begun to change.
Mr Bell said: “We have been seeing a shift away from direct equity investment and towards funds. This is because people often start with the idea of buying equities directly, but lose enthusiasm when they hit bumps in the road.
“This has led to a gradual shift towards funds, particularly low-cost passive funds, such as trackers.
“This is partly due to people’s time constraints. Not everyone can be a hardcore day trader.”
There are several challenges facing the industry said Mr Bell.
“Regulation is a major headwind, especially the amount of capital we need to hold on our balance sheets to allow us to trade, which is getting bigger and bigger. We are in the enviable position of being very profitable and well capitalised.”
“This has grown significantly due to regulation over the past three to four years and it will hurt the smaller players when the regulators start to focus on them.”
Mr Bell believes some of the worst regulation comes from Europe.
He said: “As a UK regulated financial service the further away we can get from the EU the better. So much of their regulation is nonsense. It does very little good and it is expensive.”
However, Mr Bell admits that what may be good for his company may not be right for others.
“If I was voting purely for selfish reasons tomorrow I would vote to leave, but perhaps I would need a moment of reflection as some of my friends are in industries which may well be decimated by an exit.”
