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Investment start-ups struggling to succeed in UK market, says new report

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CFA UK has published a new report analysing the prospects for new start-up companies in the UK investment management sector. Focusing on start-ups in the retail investment market, the report reviews their five-year track record and explores how easily start-ups can establish profitable and successful operations.

The report – Start-ups in UK Asset Management: A Study of Barriers to Entry & Success – follows the publication of the Financial Conduct Authority (FCA)’s Asset Management Market Study which found that barriers to entry into the sector are relatively low.
 
In line with the FCA’s findings, CFA UK’s study echoes that barriers to entry are low. Analysis of data logged by the ESMA Registers from 2014-2018 reveals that over 1,000 new start-ups were authorised by the FCA to conduct investment management in the UK in this five-year period. 
 
However, the study finds that barriers to success for new start-ups are high. As at April 2019, 5 per cent of those newly authorised firms are already inactive, but qualitative feedback from interviewees indicated that ‘survival’ in many cases did not mean ‘successful’.
 
The ESMA registers study also show that 2017 and particularly 2018 were weak years for start-up activity, with only 47 new investment firms authorised by the FCA in 2018, compared to 192 in 2017 and 265 on average for each of the 4 years between 2013-2016.
 
Feedback from participating investment professionals and research findings point clearly to the most significant barrier to success being the acquisition of customers and assets under management. While it is not too time-consuming or expensive to set up a new investment management company, the study points out that it is extremely difficult to gather the assets or flows that you need to succeed.
 
Based on the findings, CFA UK has made two key recommendations:]

• Competition policy should be updated to focus more on ways to overcome inertia and to help consumers understand the potential costs and value of switching providers;

• More could be done to promote the technological innovations that would allow consumers and suppliers to find each other faster and cheaper.

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