If the Americans get their way, buying stocks and shares could soon be as simple as buying a burger.
US high street share shop Edward Jones – dubbed by one industry source as the McDonald’s of investment – is planning to open in the UK. It is believed it will launch with nine shops in the Home Counties in the early part of next year.
The concept is simple. You walk in, open an account and Edward Jones will buy or sell your shares for you, however small or large the deal. In the US it depends on bulk deals, rather than operating as a price discounter.
Edward Jones has 3,300 offices in the US and is expanding aggressively. It plans to have 10,000 branches within the next decade and in 1994 it crossed the border to Canada, where it now has 50 offices.
In the US the nub of the idea is personalised service. Most Edward Jones offices have a staff of one, usually someone who lives in the area. The offices give advice on low-risk investment vehicles such as mutual funds, unit trusts and tax-free bonds, and a long-term relationship with customers is encouraged.
As Lucien Camp, creative director of financial direct marketing agency Camp Chipperfield Hill Murray, puts it: “It’s a bit like the man from the Pru who came round to collect your insurance money and got to know you. Only here it is dealing with shares where there are potentially much bigger margins.”
But is there a market for this kind of share shop in the UK, and if there is, can a US company with no experience of the financial services market in this country tap into it?
Though there will be an estimated 17 million private share owners once the scheduled building society demutualisations have gone through, the vast majority of these will be share owners by default.
Figures from ProShare, an independent organisation that promotes share-based investment, show that between 25 and 30 per cent of people who become shareowners due to demutualisation sell immediately, rather than using their windfalls as an introduction to the stock market.
The demutualisation may have turned us into a nation of share owners, but not, it would seem, a nation of share traders.
In fact, take demutualisations out of the mix and private share ownership is on the decline. In 1957, 65.8 per cent of UK quoted equities were owned by private share holders, compared with just 20.3 per cent in 1994 (Share Register survey 1994).
Camp says: “It’s the classic idea – there is a gap in the market. But is there a market in the gap? The mass market would be coming to the idea from so many miles away that it would have to be led incredibly slowly and gently.”
Private client stockbroker Killik & Co senior partner Paul Killik says: “The problem is one of perception. People think of stockbrokers as being part of the City, not for them. We would welcome Edward Jones coming to this country: the greater the awareness of share buying the better.”
In this country the only share shop-type organisations are cut-rate buying and selling operations offered by the high street banks. Midland Bank runs over 200 share shops from within its branches. NatWest has touchscreens in about 300 branches, which show a price and hold it for one minute while the investors decide whether to buy or sell.
Midland Stockbrokers business development manager Paul Masters thinks standalone share shops cannot work: “If you had been with Midland for over 20 years and decided to flog the 200 BT shares you bought when it floated, you would go to your bank. You would be unlikely to go somewhere else just because it was 2 cheaper.”
There is an opportunity here as consumers are suspicious of banks, a problem which a standalone organisation would not have. On the other hand, international investment companies that have tried to bring their services to this country have had their fair share of cultural problems.
One recent example is the South African investment house Liberty International and its flagging PensionStore initiative.
PensionStore, a one-stop pension shop, was set up in January, with a 5m DRTV launch campaign from Court Burkitt & Co. After six months it was making operating losses of 3.7m, and the two start-up directors quit. Liberty said it had not realised just how expensive a financial services start-up is in the UK.
US giant Fidelity has also had severe problems in the UK. Its telephone-based share dealing service Fidelity Brokerage was hit by a series of systems problems last year and was ordered by the regulator to cease trading until they were resolved.
The success of Edward Jones in the UK could depend on how much advice it offers. The banks’ share shops do not give financial advice – they merely point out which shares are recommended by market commentators.
It is understood that the Edward Jones consultants will offer some advice. But they will not be able to offer full financial planning because they will not be regulated to sell pensions or life assurance products.
The banks are targeting the mass market. Killik & Co says it is aiming at the higher-earning professional. Sources believe Edward Jones will be coming in somewhere between the two.
Camp says: “I do not think it will initially be aiming too far down the pyramid in terms of targeting low net worth customers. But as time goes on, I think it will look at bringing share dealing further downmarket.”
Edward Jones refuses to comment on the precise nature of its plans. And it will have to get to grips with British business culture. One source sums it up: “It is planning for a January 1 launch but doesn’t even have any property over here yet. It does not realise how long conveyancing takes.”