The market in UK is in decline.....40 years examination

On my desk I have a copy of "Members of the London Stock Exchange 1973-74". Forty years on it's pertinent perhaps to do some quick analysis and appraise whether one might consider the market as ALIVE & KICKING or like me (& a minority of others) ON LIFE SUPPORT.

The following firms were attempting to trade through the '74/75 slump;-

(the league table is based on numbers of Partners who maintained 'professional' unlimited personal liability ; note Associates & Attaches are NOT included ----minimum 10 Partners --- I have made a few comments against various and those with blanks do require further research-------all E&OE)
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stockbroking

Grieveson Grant & Co                                 46  (now Dresdner Kleinwort)
James Capel & Co                                       44  (became HSBC Inv Man)
de Zoete & Bevan                                        34  (became BZW now Barclays Stockbrokers)
RJ Blackwell                                                32
Hoare Govett & Co                                    31  (recently reignited; ex-RBS)
Sheppards & Chase                                      30  (merged with Carr now Investec)
WJ Greenwell & Co                                    29   (Midland now part of HSBC)
L Messel                                                      29  (became Shearson Lehman; until 2007)
Cazenove & Co                                           28  (now JP Morgan & Cazenove Cap Man)
Laurence Prust & Co                                   28
Panmure Gordon & Co                             27  (still active)
Phillips & Drew                                           27 (now UBS)
Capel-Cure Carden & Co                            26  (acquired Myers then ANZ)
Rowe & Pitman                                           26  (Akroyd & Smithers, Warburg then UBS)
Joseph Sebag & Co                                      25  (merged with WI Carr; Carr Sebag)
Norris Oakley Richardson & Glover           25
Simon & Coates                                           23  (acquired by Chase Manhattan)
WI Carr & Sons                                           22  (merged with Sebag; Carr Sebag)
Laing & Cruickshank                                  22  (acquired by Credit Lyonnais)
Strauss Turnbull                                          22  (acquired by Societe Generale)
Kitcat & Aitken                                           21
EB Savory Milln & Co                                21  (5 way merger into Parrish; dissolved 1991)
Fielding Newson & Smith                           21  (acquired by NatWest)
Colegrave & Co                                           20  (merged with Grenfell)
Hedderwick Borthwick & Co                      20 
George Henderson & Co                             20  (merged with Crosthwaite; now Investec)
Buckmaster & Moore                                  19  (acquired by Credit Suisse)
Stirling & Co                                               19
Williams de Broe Hill Chaplin                   18 (still active)
Pember & Boyle                                          18
DQ Henriques Seal & Co                            18
Laurie Milbank                                            17   (acquired by Chase Manhattan)
Hoblyn (& King;  Dix Maurice) & Co        17   (25 in 1972 ; Hoblyn dissolved October 1974)
Grenfell & Co                                              17   (merged with Colegrave)
Hichens Harrison & Co                              16   (now Religare Hichens Harrison)
Kemp-Gee & Co                                          16   (merged with Scrimgeour 8 ptnrs then Citigroup SV)
Myers & Co                                                 16   (merged with Capel-Cure then ANZ)
Quilter Hilton Goodison & Co                    16   (now Quilter Cheviot ; ex-Commercial Union)
Wise Speke & Co                                         16  (acquired by Brewin Dolphin)
Vickers da Costa                                           15  (merged with Scrimgeour into Citigroup)
Brewin & Co                                                15  (acquired Wontner Dolphin; now Brewin Dolphin)
Cohen de Smitt Greener Dreyfus                15   (merged with Pidgeon)
Hanson & Co                                               15
Harris Allday Lea & Brooks                      15 (still active)
Lyddon & Co                                               15
McAnally Montgomerie & Co                    15
Parsons & Co                                               15
Read Hurst-Brown & Co                              15
Tilney & Co                                                 15
Bell Lawrie Robertson & Co                       14  (acquired by Brewin Dolphin)
Irwin & Co                                                  14
Bendon Langton & Co                                14
WM Morris & Co                                        14
Paul R Schweder Miller & Co                  14 (still active)
Pidgeon & Co                                              13  (merged with de Smitt)
Gilbert Elliott & Co                                     13  (various hybrids; currently mothballed)
Fenn & Crosthwaite                                     13 (merged with George Henderson; now Investec)
Raphael Robinson & Glyn                           13 (merged with Zorn; now Numis)
Rowe Swann & Co                                        13
JM Finn & Co                                              12 (JM Finn & finnCap still active)
Beardsley & Co                                           12  (merged with Bishop then Henderson now Investec)
Henry Cooke Lumsden & Co                      12
Earnshaw Haes & Sons                                12  (merged with Northcote now Brewin)
Northcote & Co                                             12 (merged with Earnshaw now Brewin)
Mullens & Co (*Gov Broker)                      12  (acquired by SG Warburg, now UBS)
L Powell Dawes & Co                                  12
Trevor Matthews Carey                                11
Rensburg & Co                                             11 (merged into BWD Secs)
Castello Parsons & Co                                 11
Duff Stoop & Ross-Munro                          11  (merged with TC Coombs; dissolved 1986)
Maguire Roy Marshall & Co                       11
Vanderfelt & Co                                           11
Vivian Gray                                                  10  (acquired by Gerard)
Montague Loebl Stanley & Co                    10
Dunkley Marshall & Smithers                     10  (5 way merger into Parrish; dissolved 1991)
Galloway & Pearson                                    10  (acquired by money-broker Exco)
Keith Bayley Carroll                                    10  (now KBR corporate finance boutique; ex-WC)
AJ Pryn & Co                                               10
Harold Rattle & Co                                      10
Scott Goff Hancock & Co                            10 (merged with Duff Stoop; then Coombs; dissolved)
Carlesbach Scott Young                              10
Sternberg Flower & Co                               10  (5 way merger into Parrish; dissolved 1991)
Tustan L'Estrange                                       10 (hammered 1975)
Wontner Dolphin & Francis                       10  (merged with Brewin)
Zorn Leigh & Hunt                                     10  (merged with Raphael; now Numis)  

stockjobbing

Smith Brothers                                             36 (now BA Merrill Lynch)
Pinchin Denny                                             35
Wedd Durlacher                                          11
Akroyd & Smithers                                       7
Wedd & Owen                                               5

In 1974 there were approx. 4,900 individual Members of the Stock Exchange (only 3,000 approx. for Big Bang) represented by approx.400 firms (c.250 for Big Bang). As the fallout from the 3 day week, extraordinary high income tax (together with an investment income surcharge) approaching 98% and a bout of mergers and dissolutions took their toll the absorption and consolidation continued through the 1980's, accelerated through 'Big Bang' in 1986, the crashes of 1987, 2000 and 2007/8 to the arrival of the Retail Distribution Review which came into effect on 1st January 2013. The RDR intent was to perform a 'professional' miracle regarding the distribution of financial products and to make the pricing more competitive.

In 1974 many of the smaller, often regional, firms ironically managed to survive (albeit the failure rate was high despite there being no external regulation to worry about) through all the ups & downs, etc. Notably the following firms caught my eye in the "Members..." book of 1973-74;-

Foster & Braithwaite                                    8
Charles Stanley                                           8 (still active)
Fuller & Co                                                  7 (dissolved; now absorbed into Walker Crips)
Astaire & Co                                                7 (muddled through; became Blue Oar; dissolved)
Halliday Simpson & Co                               7 (infamously hammered c.1975)
Walker Crips Weddle Beck                        6 (still active)
Shaw & Co                                                   5 (acquired by MeesPierson then Chas.Stanley)
SP Angel                                                      3 (now a Corporate Finance/Broking boutique)
Redmayne-Bentley                                      3 (still active)
WH Ireland                                                  2 (still active)

It seems to me that the current farcical state of REGULATION is only going to make matters worse for existing firms not only in the retail space but also generally across other areas. In recent years a plethora of CFD trading firms have entered the market and yet none appear to making any impact on 'real' investment. The strange and melancholy shift away from 'wealth creation' which ALL of the above firms prospered or failed through has been replaced by a cynical 'wealth' approach ONLY intent on extracting fees from investors and perversely reducing risk, which anyone with proper knowledge and experience knows full well can never work (real world!). An Enterprise Britain executive mentioned to me a recent FCA applicant having to revise his application & presumably business plan an incredible 19 times; I'm not sure anyone with market acumen can tolerate this sort of compulsive inquisitional approach indefinitely. A former partner of mine in the '90s deemed that ALL working in compliance functions (& they have mushroomed substantially since then) should be referred to as the DPU*. I'll come back to this in a moment.

LIQUIDITY always seem to be the buzz word when anyone in authority uses an (any) excuse to tinker with the REGULATOR, the EXCHANGE, etc. This LIQUIDITY motif has been joined by INTEGRITY, FAIRNESS, TRANSPARENCY and a whole host of modern non-sensical terminologies which taken individually rarely (repeat 'rarely') makes the lives of market professionals and investors any easier. The UK used to be a great place to do business but it is increasingly becoming cumbersome and awkward.

Have you noticed that every time one turns on TV, the internet or one reads a paper, online/mobile piece the latest misused word "EXPERT" arrives to inform us of the obvious or as sometimes happens, the irrelevant?

An old market adage long forgotten which I'd like to (sorry if I'm being repetitive) reinforce today is that...."THERE IS NO SUCH THING AS AN EXPERT". Yup you got it in one!

Essentially there's an OLD belief that qualification, education and experience obtained through apprenticeship and practicalities can never turn one into an EXPERT. When I was a young man I was often referred to as a KNOW IT ALL but despite all my misgivings I never referred to myself as an expert and NEVER have to this day. Whenever I speak to someone on market matters or other subjects which I like to think that I have some knowledge of I always say that I have 'specialist' knowledge on the given subject or that I have done considerable 'research' into the area discussed.

So there we have it. Today in capital markets, the media, and in a host of other areas, the UK is full of "experts". But in truth the UK today is split between the "doers" and "don't doers". As you can gather I'm in the "doer" camp with the DPU* representing the other side. If you want to do something or get someone to do something one locates a "doer" but regrettably the "don't doers" are prevailing today in mass market destruction.

* the DEALING PREVENTION UNIT

Just look at the 1973-74 list! This is only the tip of the iceberg and this problem prevails across many professions and industries. Bankers want to sell products, lawyers want to become investment managers, accountants don't know what they want to do but rarely offer to do anything they're paid to do, new age brokers no longer broke shares but manage 'wealth' for an undeserved fee (I've seen this first hand as many Hoblyn & King portfolios are now being managed by broking firms that create nothing but take fees for this charade)...the rest is pretty obvious.

Going back to the 1973-74 lists that I've created from the "Members.." book it seems to me that out of 400 or so firms, 40 years ago, to have 13+ firms still standing in the market today begs a few questions.

No doubt there have been quite a few brokers who have pocketed millions from the various sales, acquisitions, further sales but through this period whilst everyone has participated in the greatest rally ever one would suppose that a few boutiques would have blossomed incredibly. I can think of a few success stories, Killik, Hargreaves Lansdown, Collins Stewart, Evolution, Monument and a host of corporate broking boutiques off the top of my head but I'm struggling to gather pace to enable me to constitute a 2014 league table of the finest and fittest. Virtually all of those listed on '73-74 table survived WW1, the Depression, WW2, the post war slump,etc so it would appear that the real cause of the decline in broking has a lot more to do with RED TAPE than many imagine.

Just in the last year more firms have been rubbed out; Pritchard's, Fyshe Horton Finney and Seymour Pierce. For the life of me I cannot see any new firms operating in this space in the near term.

Everyone likes to comment on LIQUIDITY, perhaps profess to be an EXPERT in these matters but it has long been my belief that LIQUIDITY is a function of the level and amount of participants that there are in the market. The market or exchange is long due an overhaul and many more boutiques are required with soft touch regulation if London is to survive as a place to do business. A Secondary Market perhaps is long overdue too representing just the interests of British companies and workers. The AIM seems to be regaining some traction but has many incremental weaknesses which need ironing out, not least of which is adviser over-charging (duplication even) and absurd liquidity.

Personally I'd like to see a return to personal unlimited liability and firms being created for this alone. Having LLP's, Limited Co's and PLC's/Inc's in the space when no-one is taking any liability is bad business for the UK tax payer.

Surely a few thousand self-employed, empowered, fully liable stockbroking Partnerships would do the market a great service right now.

But NOT if everyone has to undergo 19 revisions and counting!