Low-cost broker Interactive Investor has agreed to purchase larger rival TD Direct, which will make the combined entity the second-largest online fund platform in the UK after Hargreaves Lansdown, with assets under management of £18bn.
The deal is expected to close in the first quarter of 2017. It is financed by US private equity house JC Flowers, which will remain the largest shareholder in the combined group. According to a statement released by Interactive Investor, nothing will change for the group's combined 300,000 customers in the immediate future.
But according to the statement, the tie-up will allow investors to benefit from increased "scale, expertise and resource".
The combined entity will allow customers to trade 32 markets in nine currencies. TD Direct already allows customers to trade 16 countries across 45 exchanges. The newly formed organisation will be incorporated under the Interactive Investor name and be led by its chief executive officer, Adam Seale.
Both these DIY platforms have carved out a niche as broad online brokers, but Interactive Investor has a particularly strong reputation for offering low fees. The broker charges a flat £20 fee per quarter, which includes two free trades, while share dealing costs £10 per trade. Its flat fee makes it among the cheapest platform for funds, as well as stocks and shares, particularly when compared with Hargreaves Lansdown, which charges percentage-based fees for holding funds.
TD Direct does not charge administration fees for stocks and shares, or dealing funds, and differs from Interactive Investor in that it charges percentage-based fees for funds. It is by far the larger company, with assets of £14.5bn, and has grown fast - by £2bn in under a year - and has acquired 16,000 new customers.
"From a content point of view it's a nice fit," says Holly Mackay, managing director of investment information site Boring Money. "Interactive is good for more confident traders, while TD Direct has recently improved its journey for buy-and-hold investors who are looking for funds. The deal also gives them some scale and, hopefully, economies of scale."
But she adds: "Before we get to any of that there are two key questions for clients. Crashing together two technology systems almost inevitably brings some pain, so there could well be short-term administrative issues. And when it comes to price, Interactive has always championed the fixed approach, while TD has espoused more of a percentage charging model which will favour smaller accounts. Customers will need to wait for details of the inevitable changes."
