Au revoir Selftrade

The long-running farce at UK broker Selftrade finally seems to be drawing to a conclusion. Parent company Boursorama announced in its Q1 results [PDF] that it plans to transfer all Selftrade accounts to Equiniti.

This isn’t a huge surprise, as it’s been obvious for some months that Boursorama was looking for an exit. Details are scant, but it doesn’t sound as if it expects to get much out of the deal.

Given that Selftrade was previously one of the strongest brands in the UK market, that’s testament to the amount of damage wrought by the year-long suspension on opening new accounts and the recent requests for very intrusive financial information from existing clients. The whole affair has been a masterclass in how to lose the trust of your customers.

From bad to worse

Exactly why Selftrade ended up in this position has been very difficult to establish. In an industry usually full of gossip, specifics have been unusually hard to come by.

It appears that the Financial Conduct Authority was not satisfied with the adequacy of the firm’s anti-money-laundering (AML) controls. The firm’s decision to become a deposit-taking bank in late 2011 may have been at the root of this, as AML requirements are tougher for banks than for brokers.

The need to fix these deficiencies seems to be the reason why the firm stopped taking on new clients in early 2013, although this was not explicitly confirmed – all it would ever say is that that it was “undertaking a review to enhance some of our processes”.

It clearly didn’t help Selftrade to be out of the race for new business during the upheaval of RDR. But it was probably the way that relations with existing clients were managed during this time that proved fatal, rather than the inability to take on new ones.

The lack of transparency as to what was going on began to erode goodwill from the start. When the firm later began demanding vast amounts of detail from long-standing customers as part of a “records review”, many users felt it was trying to capitalise on the exercise to gather extra information for marketing.

Given that it now seems to have backed down on almost every requirement except for requesting proof of ID, there may be some grounds for that suspicion. In any case, its handling of the situation was spectacularly ill-judged.

Equiniti bids for the big time

The news that Equiniti is the main candidate to take on Selftrade’s client book is unexpected, since it’s not a big name among UK brokers. The firm is better known as one of the three main UK company registrars that look after a firm’s register of shareholders (the other two being Capita and Computershare).

However, Equiniti already operates a dealing service under the Shareview brand and the almost 200,000 accounts that Selftrade currently has would bulk this up enormously. Selftrade executed more than 865,000 orders in 2013 according to Boursorama’s results, which is roughly an 8% share of the retail execution-only market.

That depends on Equiniti holding onto most of the client base, though, which is not a given. The Selftrade platform(1) isn’t part of the deal, so all Selftrade customers will be moving to a different system and different charges. A migration of that size can have plenty of pitfalls and could easily see large numbers of users looking for a new broker if the process isn’t managed well.

(1) Equiniti has run its own platform since 2012, when it took over investment systems developer Peterevans. I believe that prior to taking everything in-house, Equiniti used the same SGSS solution that provides the front-end (trading) for Selftrade, which was developed by Societe Generale, Boursorama’s controlling shareholder. As it happens, the back end (trade settlement) of Selftrade’s current service also runs on the Peterevans system, which may have something to do with why Equiniti was the leading contender for the Selftrade business. Tangled, but that’s par for the course given the slightly convoluted history of Selftrade (formerly known as Squaregain and prior to that Comdirect), which at one point was part-owned by Lloyds TSB, which also used to own Equiniti …

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