The Battle for Commission: Interactive Investor Lowers Prices to Compete with Retail Platforms

Introduction

Interactive Investor, the UK’s second-largest investment platform, has announced a series of pricing revisions in an effort to attract more customers and compete with other retail platforms. The company is lowering its lowest charge tier and raising the price on its average ‘lead investor’ plan position. These changes are part of Interactive Investor’s strategy to position itself as a gateway for customers to access the services of asset manager Abrdn, which acquired the platform for £1.5bn last year.

The Pricing Changes

Starting from September, Interactive Investor’s lowest-priced option will be £4.99 a month, available to customers with up to £50,000 to invest, up from the previous threshold of £30,000. Additionally, the company is increasing the price on its average ‘lead investor’ plan position by 20% to £11.99 a month. CEO Richard Wilson emphasized that these changes are cost-neutral to the platform and are necessary due to inflationary pressures and the company’s ambition to attract more customers after the acquisition by Abrdn. Wilson stated that the price reset is to ensure that Interactive Investor’s offerings remain competitive in the future.

Interactive Investor’s Strategy

Interactive Investor’s pricing changes are part of a broader strategy to position itself as a gateway for customers to access Abrdn’s other services. The acquisition of Abrdn brought the asset management and advisory firm into the retail investment space. Interactive Investor plans to launch a new digital “portfolio partner” service early next year, which will guide investors based on their risk tolerance and financial goals. The company aims to simplify the investing experience for large numbers of people by combining product engineering and investment management teams.

Challenges with Flat-Fee Model

Interactive Investor’s decision to adopt a monthly subscription model in 2019, especially its flat-fee structure, has presented some challenges in attracting new clients. Jeremy Fawcett, CEO of research firm Platforum, explained that the flat-fee model is less attractive for new investors, as the fees are a larger percentage of their smaller initial portfolio compared to more established investors. Interactive Investor has around 400,000 clients and £56bn of assets under management. Unlike its rivals, the company’s revenues do not increase as pots grow over time, making it necessary for Interactive Investor to fight harder for new clients.

Competition in the Retail Platform Space

Interactive Investor’s price moves are aimed at competing with other retail platforms, such as Hargreaves Lansdown, AJ Bell, and Vanguard. While Interactive Investor’s flat-fee model may be less attractive to new investors, it positions the company as the cheapest option for customers holding more than £15,000 in an ISA. Hargreaves Lansdown, the UK’s largest investment platform, removed charges on monthly investments in stocks, mutual funds, and ETFs this year as part of its digital overhaul strategy to cut fees and remain competitive.

The Importance of Customer Value

CEO Richard Wilson emphasized that Interactive Investor is not interested in engaging in a race to the bottom on fees. Rather than focusing solely on offering the cheapest fees, the company aims to provide a service that customers perceive as valuable. Wilson highlighted the importance of personalization and ensuring that customers feel they receive value from Interactive Investor’s services. The company’s focus on customer value sets it apart from competitors and reinforces its commitment to delivering a high-quality investment platform experience.

Conclusion

Interactive Investor’s pricing revisions reflect the company’s efforts to attract more customers and compete with other retail platforms in the investment space. By lowering its lowest charge tier and raising the price on its lead investor plan, the company aims to broaden its appeal and ensure its offerings remain competitive in the future. While the flat-fee model presents challenges in attracting new clients, Interactive Investor’s focus on personalized and valuable services sets it apart from competitors. As the battle for commission intensifies, Interactive Investor continues to position itself as a leading investment platform.

Summary

Interactive Investor, the UK’s second-largest investment platform, is lowering its lowest charge tier and raising the price on its lead investor plan as part of its strategy to attract more customers and compete with retail platforms. These changes come after the company’s acquisition by asset manager Abrdn and are aimed at positioning Interactive Investor as a gateway for customers to access Abrdn’s services. While the flat-fee model presents challenges, Interactive Investor looks to provide a personalized and valuable experience to its clients. As the battle for commission intensifies in the retail platform space, Interactive Investor maintains its commitment to delivering high-quality investment services.

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Interactive Investor is moving tens of thousands of customers to its lowest charge tier, the latest salvo in an increasingly intense battle between retail platforms over commissions.

The UK’s second-largest investment platform said on Friday its lowest-priced option – £4.99 a month – would be available from September to those with up to £50,000 to invest, up from £30,000, while it raised the price on its average ‘lead investor’ plan position by 20% to £11.99 a month.

Insisting the changes were cost-neutral to the platform, Chief Executive Richard Wilson said the firm was struggling with inflationary pressures and its ambitions to attract more customers after being acquired by the asset manager Abrdn for £1.5bn last year.

“A lot of the renovation is to broaden the appeal, so there’s a progression for those with lower activity levels,” Wilson said. “Part of what we’re doing here is resetting that price so it’s fit for the future.”

The changes are part of a series of developments planned by the platform this year as it positions itself as a gateway for customers to access Abrdn’s other services.

The Abrdn acquisition in May 2022 brought the asset management and advisory firm into the retail investment space. Interactive Investor plans to launch a new digital “portfolio partner” service early next year, which will guide investors based on their risk tolerance and financial goals.

“We have combined the product engineering and investment management teams to create a new product that will have mass appeal to simplify the investing experience for large numbers of people,” Wilson said.

Interactive Investor has made several revisions to its pricing structure since introducing a monthly subscription model in 2019. The approach is an outlier among other large platforms, which lean towards a percentage commission on customer activity.

“The challenge with the flat-fee model is that it’s not as attractive when you’re starting out,” said Jeremy Fawcett, chief executive of research firm Platforum, referring to the fact that flat-fee accounts are a larger percentage of the total for those with wallets. smaller . “They need to move the needle. They need to get more Hargreaves Lansdown, AJ Bell and Vanguard consumers.”

He added that unlike rivals, Interactive Investor’s fee structure meant it had to fight harder for new clients as its revenues didn’t increase as pots grew over time. It has around 400,000 clients and £56bn of assets under management.

The platform scrapped a mid-tier option in 2022 and launched the cheapest £4.99 plan aimed at less affluent investors earlier in the year. It said it would also cut trading fees from £5.99 to £3.99 from September, including on US stocks.

Customers would be notified of the changes over the next week, it said, before moving people to its entry-level subscription plan.

Wilson defended the decision to raise prices on its current mid-range plan, arguing the company was managing high inflation and hadn’t raised subscription costs since 2020.

Freetrade, a start-up platform, raised its standard subscription fee for tax-free individual savings accounts (ISAS) to £5.99 a month in March, while raising the price of its self-invested personal retirement account to £ 11.99 per month. Its Sipp service is cheaper than Interactive Investor’s “pension builder” equivalent.

Hargreaves Lansdown, the UK’s largest investment platform, removed charges on monthly investments in stocks, mutual funds and ETFs this year. It comes as the platform embarks on a digital overhaul that it says would help cut fees.

Interactive Investor’s price moves make it the cheapest for people holding more than £15,000 in an ISA, according to advisers at Lang Cat, based on assumptions about the number and type of trades investors make.

“It’s a very personal situation. You have to look at the size of your initial portfolio,” said Steven Nelson, insight director at Lang Cat. He said people should still consider whether they have plans to trade more actively or plan to buy and hold.

Interactive Investor’s announcement comes as the Financial Conduct Authority prepares to present new duty of the consumer rules next week. The regulator will aim to pressure firms into opaque fees and commissions, although Fawcett said the measures were unlikely to lead to lower fees.

He said the platforms were motivated by competition. As consumer choice expanded, they had to fight harder to attract customers.

“We have no interest in cheap seats. The important thing is that you have a service where the consumer thinks they have value,” Wilson added, insisting that the platform would not engage in a race to the bottom on fees.