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Across the Pond

America and Great Britain, as the old saying goes, are separated by an ocean and a common language. Add to that another difference--the way people in each country handle their money.In the United States, dollars earmarked for the proverbial rainy day have tended to flow into stocks and mutual funds. Across the pond, in the United Kingdom, surplus pounds have mostly headed toward savings banks and

America and Great Britain, as the old saying goes, are separated by an ocean and a common language. Add to that another difference--the way people in each country handle their money.

In the United States, dollars earmarked for the proverbial rainy day have tended to flow into stocks and mutual funds. Across the pond, in the United Kingdom, surplus pounds have mostly headed toward savings banks and insurance companies. For the average breadwinner in the U.K., the stock market is relatively alien.

It's not that retail investing hasn't existed in Great Britain, it's just been reserved for the wealthy. In England, the typical individual investor comes from old money--lots of it--and maintains a close relationship with a haute private-client firm that has managed the family's assets for generations. For those investors and their reps, familiar American brokerage concepts like cold calls and seminars are as foreign as the infield fly rule and designated hitters.

But that is changing. And a growing roster of U.S. brokerage and asset management firms are playing a central role. The reason is simple--U.K. residents seem to have developed America's voracious appetite for equity investing. It's a broker's dream--a willing and almost entirely untapped country.

It's not that a Who's Who of American broker/dealers haven't maintained a presence in the U.K. for years. They have. But it has been almost exclusively on the institutional side.

When you ask the Merrills and the Salomons why they didn't try to grab a piece of the retail market previously, they provide succinct and uniform answers: What retail market?

Sources say that direct equity investment--not including holding mutual funds or unit trusts--accounts for little more than 1 percent of London Stock Exchange (LSE) activity. Charles Schwab, one of the U.S. players in the U.K. market, says that the average number of trades handled each day by Schwab in the states is more than all retail trades made daily on the LSE.

Driving Changes

Tradition may die hard in the United Kingdom, but it is dying nonetheless. And while St. Paul's Cathedral and the Bank of England give the financial district--known as the City--a sense of stately permanence, the new glass and steel complexes and the Millennium Dome just across the River Thames casts a more modern image. This is not a place of mere legacy, but the home of an industry ready to embrace the retail investor.

"It's as if almost overnight ideas about money and investing have changed," says Guy Knight, managing director of Charles Schwab in the U.K. "Suddenly U.K. and European residents are beginning to understand about the stock market, whereas in the past they never much cared."

The reasons for the change are both country-specific and part of a global trend. Locally, the British government, mindful of the number of aging baby boomers in its midst, has been actively campaigning to make people more aware of their fast-approaching retirement needs. Additionally, a number of large British utilities and transportation companies recently put stock in the hands of millions almost overnight.

"I think that receiving stock from the privatizations may have piqued the interest of many people," says Allan Anderson, managing director of Edward Jones & Co. in the U.K. "They're wondering what the stock market is and how it works."

According to British consulting firm Gemini Consulting, privatization has put stock certificates in the hands of 15 million residents. Previously, barely one million people were considered active or direct investors.

A final impetus comes from the unprecedented bull market and the rise of online trading. It's not that everyone in the U.K. suddenly ran out and began trading stocks on the Internet--in fact, general Internet usage in the U.K. lags far behind that in the states--but news coverage of the trend wasintense from Dover to Glasgow.

And as one veteran rep from the brokerage division of Barclays Bank in London puts it, Brits would have to walk around with their eyes closed and hands over their ears not to be enticed by the "highly sexy coverage of the stock market."

Educating British Customers

For American brokerages, turning interested bystanders into clients is the goal. Yet prospects who have had little or no connection to brokers and equity investing have to be convinced that the stock market exists for them.

"When we first began building our business over here we learned that our mission was not to sell customers on the idea of investing with Charles Schwab, but to make potential clients comfortable with the very idea of investing in the market," Knight says.

In a practical sense that meant Schwab, like its competitors, didn't rush in with heavy ad campaigns, rather it relied more on educational efforts.

"If we had just begun advertising, 'Invest with Schwab,' no one would have thought we were talking to them," Knight says.

While Schwab and other firms are offering online trading (and it is catching on), Edward Jones officials say their mission is to get prospects to understand the nature of the broker/client relationship--of a single individual who has expertise in stocks, bonds, funds and financial planning.

"The American model of a broker who is there to explore a customer's financial goals and handle the range of their investments just hasn't been a part of British culture," Anderson says. "It's a new idea to many people and our job is to make them receptive to it."

Most U.K. residents invest or save with several types of institutions. They have their insurer, their savings and loan and perhaps even a financial adviser who specializes in unit trusts. But the average person would dismiss the idea of using a stockbroker. "A broker to them is someone who handles the assets of the very wealthy," Anderson says.

Competing in the U.K.

As the winds of change sweep Great Britain, more American firms will blow in. And, in true American style, competition will intensify.

Merrill Lynch's plan, much reported in the British financial press, is to win three percent of the private assets in Britain. (It took almost 20 years to achieve that figure in the states.) To accomplish the goal, Merrill originally targeted expatriate and international clients, typically high-net-worth individuals with 750,000 dollars and up to invest.

But as part of its growth strategy, the firm is seeking slightly less affluent investors with 300,000 dollars and up. And it is casting a wider geographic net with branches in cities throughout England and Scotland.

"Originally we had focused our attention around London," says Tim Taylor, managing director of Merrill's international private client business. "But we have realized that much of the wealth is spread far and wide."

Merrill is also adding advisers to its private client group, looking to have about 250 in the fold by year-end.

As Merrill pursues the higher end, Edward Jones is trying to duplicate the common man and woman strategy it used to establish its small-office empire in North America. The St. Louis firm is already the largest broker in the U.K. based on the number of offices--55--and it expects to almost double that before the year is out.

The firm has developed an active recruitment and training program bringing in people from all over the United Kingdom. Anderson says that most recruits are intelligent people with no brokerage background, similar to the firm's American trainees.

The brokerage field is growing crowded in between Merrill's stake at the high end and Jones' claim on the smaller investor. That gap is being hotly contested by Schwab, which already dominates the online sector, and DLJ Direct, E*Trade and Waterhouse Securities. And in a style American investors have become accustomed to, many of the discounters went right to a price war. One U.K. broker says it's a sign that the differences between retail markets on both sides of the pond will disappear quickly.


Steven Jones

Edward Jones & Co.

Sevenoaks, Kent, England

Steven Jones was quite happy working for Edward Jones & Co. with a successful office outside of Raleigh, N.C. Yet when he heard the company was looking for brokers interested in establishing an operation in the United Kingdom, he couldn't resist.

"It struck me as both a good opportunity and a challenge," Jones remembers. To get the position, which landed him in Sevenoaks, an affluent community about 20 miles southeast of London, he competed with a group of about 250 Jones brokers. The core requirements, he says, were a long-term profitable business with the firm and a spotless compliance record.

From the first group, the company chose 100 candidates to interview by phone. Of those, they handpicked 25 to fly to St. Louis for face-to-face discussions.

The challenge in front of the potential candidates was clear. They would be introducing a way of doing business to a culture that wasn't familiar with the American model of brokerage.

"Certainly it was going to be different," Jones says. "But really not all that much so. I've brought in many clients in North Carolina that never had an account with a brokerage firm before."

Jones was offered the position in 1997. And after compensation for giving up his domestic book was settled, he was on a plane over the Atlantic.

The advantage of being a U.S.-style broker in the U.K. is the ability to offer something new and improved. New, for obvious reasons, and improved because British investors tended to buy products from institutions without forming relationships with people.

"From the beginning, everyone I spoke to was intrigued by the idea of having a relationship with a single individual," Jones says.

Since Jones himself is now a reason clients buy, he assures them that he's there for the long haul. In fact, he made a five-year minimum commitment to the project.

What he likes, in addition to building a book of business, is the lack of close competition in England. He is never just another broker calling on a potential client.

"Every broker in the U.S. knows the feeling of being scolded because they are the fifth rep to call a prospect in a single day. Here that just never happens."

College Town Rep

Edward Jones & Co.

Cambridge, England

As an Edward Jones broker in Des Moines, Iowa, Larry Robertson's Saturdays in the fall often centered on college football. And as one of the firm's original six brokers in England, he still enjoys the college atmosphere, only now it's the majestic architecture of Cambridge University.

"I love it here," he says of Cambridge, having moved there two years ago. "And I love being part of something new."

The "something new" is the introduction of the personal broker-client relationship in the United Kingdom.

"Most people think brokers are only interested in you if you have 250,000 pounds to invest," Robertson says. "Many are shocked to hear that it can be different."

Robertson also notes that certain standard topics of conversation in the United States are different in the United Kingdom. "Although retirement issues are on everyone's minds, it isn't cocktail party conversation like it is in the U.S.," he says. "The British are more reserved about their finances." But they are equally interested.

Case in point. Robertson's first seminars--a key in the Jones business-building arsenal--brought in more people than he ever had in Iowa. He was able to convert many of them into clients right away.

Although Robertson says he feels at home in Cambridge, he admits that he does on occasion miss the roar and excitement of Midwestern college football. "But on the other hand, my wife and I love to travel. Here you can get to the most glamorous places in the world in hardly any time. You can be in Paris by train in only a few hours."

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