Abrdn Vote Delayed by Paper Shortage

It has been reported by Sky News and the FT that the vote on the acquisition of Interactive Investor by Abrdn (ABDN) has had to be delayed. The reason is simply that there is a shortage of paper it is suggested. Abrdn have about 1.1 million shareholders and the offer document is 120 pages long. Company law requires the document to be sent to everyone on the share register, and quite rightly you may so for such an important transaction.

Does this not highlight the absurdity though that email addresses are not held on share registers, only postal addresses. Some shareholders may prefer a paper document but most might prefer an option to receive it electronically, particularly as they are unlikely to read the whole 120 pages.

It is surely time to update the Companies Act to ensure all shareholders (including beneficial owners currently in nominee accounts) are on the share register with an email address. This would save companies a large amount of money and improve communication between companies and their investors. The absence of an email address also thwarts the ability of shareholders to communicate with other shareholders at reasonable cost which was a basic principle of Company Law since Victorian times.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Interactive Investor Acquired

Interactive Investor have announced that they are being acquired by Abrdn, reportedly for £1.5 billion. Interactive Investor have been providing a popular and low-cost share dealing platform for private investors and have been owned by JC Flowers recently. Interactive acquired The Share Centre a few months back and now have about 400,000 clients.

At least it looks like Interactive Investor clients won’t have to learn their way around a new platform as there is a commitment to keep the business as a separate operating entity with existing management and the same pricing while Abrdn have relatively few direct retail clients. Abrdn are a large fund manager though so no doubt we will see the Interactive Investor platform promoting their funds in due course. But any changes might be of concern to existing Interactive clients.

The comment published in the FT is relevant: “The most successful platforms in recent years have been those independently owned, said David McCann, analyst at Numis. He said creeping bureaucracy, lack of management focus and the worst sin of trying to cross-sell products from the parent group to platform customers amount to very real risks for the success of the tie-up”.

That pretty much sums up my view of the likely benefits or disbenefits of this merger although clearly Abrdn have larger financial resources that might help Interactive Investor in an increasingly competitive platform world. But will large company management really understand the needs of retail investors?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Share Centre Future and FT Spoofing Article

The Share Centre recently advised their customers of “Our Future with Interactive Investor”. It gave details of the transfer of accounts to the Interactive Investor platform following the acquisition of the Share Centre business. However they failed to point out one important point which customers need to be aware of.

Share Centre ISAs are “Flexi ISAs”. This means that you can take cash out of the ISA and put it back in so long as you do it in the same tax year. Many people may have taken cash out this year after stock markets fell and put it on deposit, with the intention of putting back in later.

But Interactive Investor do not offer a Flexi ISA so if a Share Centre customer took cash out they won’t be able to put it back in after the account transfer. The Share Centre should surely have warned people about this but I can see no reference to it in their literature.

Spoofing

There was a very interesting article in the Financial Times today on the subject of “spoofing” – the practice of entering and cancelling orders in rapid succession to manipulate the prices of shares, bonds or commodities. The article was headlined “US regulators step up battle with spoofing” and mentioned the $920m fine imposed on JPMorgan Chase this week. Apparently the company’s traders had been using this abusive practice for years. The size of the fine should surely deter the practice if companies can actually control their traders.

This practice is not just confined to the USA of course. It was also alleged to have taken place in Burford shares recently. It just needs large transaction volumes in an order book system to make it viable.

It is symptomatic of the sharp practices that are rampant in the financial world. It is of course a practice to be abhorred as it creates a false market in the shares of a company. It suggests that there are buyers or sellers queuing up to buy or sell the stock, and a general impression of activity when none might exist.

Why not put a stop to it by imposing a time limit before an order can be cancelled?  

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Alliance Trust Savings Sold

Alliance Trust (ATST) has sold its Alliance Trust Savings (ATS) subsidiary to privately-owned company Interactive Investor. The ATS investment platform was always a peculiar business for a traditional investment trust to be holding. It was also consistently loss-making and reported an operating loss of £19.3 million in 2017 after a big write down of intangible assets. The directors valued the ATS business at £38.3 million in the 2017 accounts and Interactive Investor are paying £40 million for it but it looks like they are getting the Dundee offices of ATS valued at £4.9 million in addition.

The ATS business will continue to operate from Dundee as will Alliance Trust itself. But there will presumably be some rationalisation of IT systems in due course so clients of ATS may need to learn new software eventually. Charges might also presumably be harmonised also. Interactive Investor charge a fixed quarterly fee of £22.50 which covers some trading fees. Otherwise trading charges are £10 per trade, or less for frequent traders. This structure means that charges do not rise as your portfolio grows and is particularly well liked by those with larger portfolios.

The disposal of ATS was always on the cards after the revolution and board changes a couple of years ago at Alliance Trust. This looks a good deal for both Alliance Trust and users of the ATS platform. It completes the dismantling of the empire built by former CEO Katherine Garrett-Cox.

It is also another step in the consolidation of the “investment platforms” market which is certainly a trend as a lot of them aren’t making much in the way of profits at present (other than Hargreaves Lansdown covered in the previous blog post).

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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