Investment start-ups struggle to succeed in UK market

Friday 1 November 2019

New CFA UK study reveals investment start-ups face low barriers to entry into the UK market but high barriers to success
Customer acquisition and building brand loyalty and trust are identified as the biggest barriers to success
New analysis of ESMA data also reveals a sharp drop-off in new investment business authorisations since 2017


CFA UK today published a 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% 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.

Says Will Goodhart, chief executive of CFA UK:

“It isn’t difficult to start up new investment management businesses, but the fact that this is such a scale and track record dependent business means that many start-ups struggle to grow beyond the entry-and-survival phase to reach sustainable profitability. That’s worrisome. There’s already a high level of concentration in passive management and it appears that we are heading the same way in active. In assessing the competitive nature of the market for investment management, the FCA shouldn’t only consider barriers to entry, but should also be conscious of the barriers to success. Consumers benefit from environments that enable competition and innovation – from new entrants as well as established firms.”


Notes to editors: 

For further information, please contact Ogilvy: 

About the study

This study was compiled by a team of CFA UK volunteers. The findings are based on a survey of the CFA UK membership, interviews of start-up company management teams and original research.

For the latter, the team applied a model used by the OECD in 2007 across each of the sectors to compare the relative importance of three barriers to success: namely, the costs of customer acquisition; the level of start-up and operating costs and lastly the competitive reaction of incumbents.  

The survey was open to all CFA UK members and there was a total of 126 respondents. 


About CFA UK

Part of the worldwide network of member societies of CFA Institute, CFA UK represents the interests of 11,600 investment professionals in the UK.