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Stop this platform misinformation

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In the (almost) four years since we secured the funding to start working on the Nucleus business (and even in the six years before that) I do not think any other market segment has attracted as much wildly speculative, misinformed and ultimately incorrect commentary as the platform space.

Depending on the debate of the day, those with vested interests in protecting the (dismal) status quo have claimed that it will not be possible for IFAs to concentrate client assets on one or two platforms, that advisers will not be allowed to invest in platform businesses and that perhaps most absurdly of all, client outcomes will be enhanced if we limit transparency and constrain client choice.

Those rambling with a view to stalling progress have no idea how confusing this noise can be for those seeking to cut through the rhetoric and simply deliver great client outcomes.

The FSA’s recent publication of retail distribution review discussion paper 10/2 has gone a long way towards clarifying matters and accordingly I wholeheartedly welcome its publication.

Provided the discussion period is not hijacked we will be able to look forward to a future in which unbundling will be mandatory and platforms will be unable to profit by limiting choice.

While there will always be instances where bundled offerings are lower cost (as oft discussed on the Money Marketing blogs) the key point is that platforms will no longer be able to negotiate with fund managers to secure an advantage for the platform without the client and adviser being aware of this.

It is a fundamental tenet of consumerism that the client must be able to work out what is going on. It is therefore a fundamental responsibility of this industry to deliver unbundled transparent platforms.

It is now clearer than ever before that the FSA has no issue with advisers or IFA firms holding shares in a platform provided any conflict of interest is appropriately disclosed and managed – quite why this was ever an issue when no-one has ever even discussed advisers holding shares in life companies or asset managers is absolutely beyond me. It is refreshing to see such common sense from the FSA on this issue.

Similarly, the regulator has made it abundantly clear that advisers must have due regard for individual circumstances when recommending platform solutions – meaning that an adviser may find that one single platform does not meet the requirement of all of an adviser’s clients. It does not however mean that IFAs should actively seek to distribute clients’ assets across the entire platform market and beyond. In all likelihood most IFAs will find their client clustered around certain characteristics and as such I would expect a well run practice to work with perhaps one or two core platforms with other propositions (platform-led or not) picking up the slack.

The regulator has listened to the merchants of positive change and I for one urge the FSA to stick to its guns as the common sense that has emerged is a far more believable basis on which to build an industry.

All in all DP10/2 is wonderful news as it provides this industry with a framework in which it might finally shake off the shambles of the past and shift into a world where respect may be forged and a new found engagement with society carved out.

David Ferguson is chief executive officer of Nucleus.

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Readers' comments (43)

  • >It is a fundamental tenet of consumerism that >the client must be able to work out what is going >on. It is therefore a fundamental responsibility of >this industry to deliver unbundled transparent >platforms.

    Agreed. Will you allow investors to deal direct post RDR, albeit with a reasonable transparent platform charge or will investors still be forced to deal thru IFAs and pay for advice they do not want?

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  • My god! I nearly fell off my chair laughing at David's 2nd paragraph "those with vested interests..."

    If ever there was a guy with a vested interest, this fella would be right up there!

    David, as we have discussed many times before, your platform may be transparent and unconstrained, BUT, and it is a really big BUT, it is more expensive... simple as that! And I fail to see how, more expensive can, in your own words "deliver great client outcomes"!

    I do wonder why MM keep giving you airtime, when you keep on with you vested interest.

    My own, personal humble opinion of course.

    :)

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  • David Ferguson's well reasoned and logical article doesn't deserve the anonymous rant from 'You must be joking'. Cheaper than what? What are you comparing? Chalk and Cheese? It is precisely this sort of ill informed 'debate' which creates mere noise and nil information.

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  • This could well be missing the point. I think I am right in saying that Nucleus has at least one financial institution as a large shareholder. Forgetting the sterile argument as to whther an IFA should use 1,2 or 12 platforms, they are still hostages to insurance companies, etc., looking to protect their distribution at the expense of everyone.

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  • Whether or not there are institutional shareholders also misses the point. Wrap is a lower margin business than traditional 'bundled' insurance co products and is a service more than a product. A bit of due diligence normally sorts out which 'operators' are still in old fashioned product profit maximisation and sales mode and which have grasped and fully committed to a quite different business model of service partnership with advisers.

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  • Agree with all Stanley says. David Cowell's comment - as with any start up, it normally needs financial backing. However, this backer is not trying to promote its own products or restrict others. It is merely investment backing for what it sees as a successful business.

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  • Wholeheartedly agree with David's comments - vested interests are slowing progress. Great believer in WRAPS and transparency and the sooner traditional providers get to grips with this, the greater chance they have of prospering post RDR. I believe that potential direct access to WRAPS without advice would be very dangerous for any but the small minority of very professional private investors. In addition, such a WRAP would need to be designed specifically for that small minority. Therefore, by default it would not be a viable proposition to provide for a small customer base. Other comments have already made the point that one size does not fit all.

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  • FAO JMBJ: we have indeed discussed this many times and you are of course correct to say that Nucleus (or indeed any platform) can be more expensive in any given circumstance. Aside from that I can assure you that my vested interest lies in a future where the market works far more effectively than it does today. If you'd only tell us who you are I'd be delighted to spend some time with you taking you through my beliefs (and background) in more detail.

    As to the B2C comment from John Blackmore all I will say for now is that there are some members of our IFA community who think it would be a great idea.

    Genuinely have to go now but will try to look back later...

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  • Money Marketing should be charging Mr. Ferguson a fee for his regular advertorials in their publication because I've yet to see a commentary from him that was independent and not self-serving.

    As for "tenets of consumerism", I support the idea that clients are entitled to know what fees they are paying to which parts of the value chain (product provider, platform and advice), although I suspect the vast majority are only intested in the total, all-in cost.

    Where I take issue is the notion that larger platforms should not be entitled to derive benefits from their scale and resulting efficiencies. Yet this is what will happen if all platforms are obliged to use the same rebate/commission-free share class of funds.

    When a large platform bundles hundreds of IFA transactions each day into a single one for each fund manager, they are saving the fund manager considerable servicing costs. Why should they not be entitled to share in these savings through better rebates which can then either be reinvested in enhanced services and/or passed on to clients in the form of lower platform fees?

    When I walk into Tesco, I don't know the wholesale costs of their products. I just know that the retail (all-in) price to me are typically some of the lowest available. I also expect to pay more for the convenience of purchasing the same product at my local (lower volume) corner grocer.

    Transparency is important when it protects the end client against potentially adverse conflicts of interest. This does not require enforcing an "even playing field" for all platforms when it comes to their commercial arrangements with supliers.

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  • Dear Capt. Stan (think about it)

    I don't believe I gave an anonymous rant (if you read both the MM and other comment sections, you will see I always post under this name).

    David is fully aware of my views on the bundled/unbundled arguement, as you will see from his comment a few below yours.

    "Cheaper than what?" you ask - than other platforms/wraps... i.e what the original article is about... no mention of chalk or cheese...try to keep up my dear man :)

    As far as noise an nil information goes, as you've obviously missed my previous posts, our proposition to clients is as follows:

    1. We will use one wrap/platform to hold collectives

    2. We will not generally use ETFs - I dislike immensely the counterparty risk

    3. We will research the whole UK fund universe (UT/OEICs) using our own fund selection criteria and Analytics EVERY QUARTER - I believe it was 3168 funds this last time

    4. We will combine the funds which pass our criteria into a series of portfolios, each with a different volatility target

    5. We will pay due consideration to what is going on in the economy at any given time in deriving asset allocations, both strategic and tactical

    6. We will remove funds which cease to pass our criteria

    7. We will rebalnce portfolios quarterly

    Each quarter all our clients receive a full 28 page brochure which takes them through our views on current economic activity, asset allocation models, volatility targets, our fund research, comments on any manager changes, portfolio breakdowns and performance data... I could go on!

    Now if that isn't a business model.... well :)

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