AJ Bell, Hargreaves Lansdown and Interactive Investor have clubbed together to publish an open letter, demanding more rights for retail investors to access IPOs.
Platform bosses Andy Bell (pictured), Chris Hill and Richard Wilson, who are chief executives of AJ Bell, Hargreaves and II respectively, have written to the Rt Hon John Glen MP, economic secretary to the Treasury and City Minister, to consider a rule change that would make it a requirement for companies coming to market to consider a retail element to their IPO.
“Currently there is a danger that this only happens when the company and its advisers suspect there will be weak demand for the IPO,” they said.
The letter comes off the back of a bumper month for IPOs in January which saw 51 companies listing shares in the UK alone. Big names including Dr Marten, Moonpig and the Hut Group excluded retail investors from participating in their LSE listings.
‘IPOs have been the preserve of City institutions for too long’
The trio of platform bosses point out that between October 2017 and October 2020, private investors were invited to take part in just 24 out of 352 IPOs, on the main market and AIM, meaning they were excluded from 93% of share launches.
“IPOs have been the preserve of City institutions for too long,” Bell said. “This is unacceptable in today’s market where there are millions of engaged and informed retail shareholders that are managing their own portfolios and want to participate in IPOs.”
He added: “It is wrong that these investors are still excluded from the majority of new listings at outset and UK plc needs to wake up to the fact that they form an increasingly important part of their shareholder base.”
80% of DIY investors believe they should have access to all IPOs
Some 80% of 2,008 DIY investors surveyed by II this month felt private investors should have access to all IPOs and that it is unfair to exclude them.
Despite the majority of retail investors believing they should have the right to access all IPOs, only 46% said they would participate from the outset, while 38% would rather wait and see how things pan out, according to II.
“Retail investors are able to make grown-up decisions about the companies they invest in and should never be taken for granted,” Wilson said. “It is short-sighted for companies to deny them opportunities on the same terms as institutions. One day, these companies might come to rely on smaller investors.”
Benefits for both UK plc and ordinary investors
The letter lists additional benefits to companies of having a retail offer as part of their IPO, including generating an additional source of capital and generating increased demand. It also states that it can help raise the profile of the business and deepen relationships with loyal customers by treating them equally with institutional investors.
Hill said: “Ordinary investors are being left on the sidelines when companies float on the stockmarket, and the institutions reap the benefits of a head start. Changing this can bring huge benefits for ordinary investors, not only in the form of increased returns but in boosting awareness of investing at a time when bank accounts offer next to nothing, society is on track to have too little put aside for the future and regulators are worried by people holding too much in cash.”
“There’s also an advantage for businesses coming to market which can diversify their shareholder base and improve the visibility of their brand more widely,” he added.
There are no barriers to opening IPOs to retail investors as it is a standardised process which is fully compliant with the FCA listing rules and requirements of the London Stock Exchange.
The listed company would not encounter any ongoing costs as the retail platform manages the requirements of the shareholders such as issuing dividends.
