A series of insurers have recently announced plans to grow their footprint in direct-to-consumer investment. But life offices are not the only ones looking to boost their direct profile.
Money Marketing understands a number of banks and even fund managers are exploring options to build on their ability to deal direct with investors. HSBC is understood to be involved in ongoing discussions with FNZ to power a beefed-up platform engine. The bank currently offers Isa wrappers to existing deposit holders and FNZ built the firm a workplace platform offering in 2010.
Meanwhile, a number of asset managers are also rumoured to be in talks with platform technology providers although experts say there is likely to be limited appetite among fund houses to launch true open-architecture platform propositions.
Post-RDR, banks have scaled back their face-to-face advice offerings, with fines, reputational damage and advice charges transparency creating a difficult environment for a number of high-street giants.
But experts says banks are unwilling to give up completely on their matket share among customers.
Barclays has historically offered a stockbroking service to direct investors and is in the process of updating its technology, consolidating the service onto an FNZ-powered platform.
CWC Research managing director Clive Waller says other banks will also look to technology providers in an effort to increase their retail investment presence.
“A number of fairly strategic factors are at play,” he says. “The biggest one is that post-RDR banks haven’t got a sensible retail investment strategy.
“They have normally been relatively strong on retail investment although margins were thicker and there was less risk.
“The problem now is that with a very high cost of regulation it is difficult to make any money out of it. So they have got to have a platform, partly because you simply cannot run investments these days without the custody and reporting they provide. But also because with a platform you can make it compliant because there are fewer people giving out information, which is harder to put controls on.”
Technology firm Altus director Kevin Okell says improving technology will allow banks to access clients lost with the decline of bancassurance post-RDR.
He says: “The banks have a lot of retail customers they can’t get at post-RDR. They already look after customer deposits so it should be an easy step where they have a customer relationship to get them looking at longer-term saving products. The Nisa rules breaking down barriers between cash and stocks and shares also creates an opportunity for those with a banking licence.”
The FCA recently sought to clarify the boundaries of guidance and advice and has launched “project innovate” in an effort to reduce fears that technology could fall foul of regulatory scrutiny.
EY financial services senior adviser Malcolm Kerr says accepted definitions of advice and non-advised guidance will become clearer as the Budget guidance guarantee takes shape.
He says: “The FCA is looking to define what guidance includes. As it emerges there may be some lessons which can be incorporated by those offering online solutions to consumers that don’t want full advice.
“The banks would be keen to regain market share and will feel their customers could have some form of guidance if they can’t afford to give them advice any more.”
Waller agrees concerns about the regulation of online investment guidance will eventually be overcome.
“FCA chief executive Martin Wheatley has said a hybrid between online and face-to-face advice is OK,” he says.
“Most people would rather do something themselves until the point they feel they cannot, at which point they will get help.
“It is exactly the same with ATMs, which people use until they need something more complex.”
But those banks looking to grow their investment services in the direct space will face competition.
L&G has also hinted at new D2C projects and Royal London has sought to boost its consumer-facing brand awareness.
Kerr says insurers and banks could end up competing for similar clients.
“I see a lot of competition in terms of customer engagement. The technology and solutions are going to be pretty similar. So the issue is, how do you get people to deal with your website instead of someone else?”
He argues banks may have an advantage if they can use existing client relationships to encourage people to invest.
Kerr says: “With the insurance companies, most of their current business is intermediated so they have to think of a way to bring people to their site. And that is very, very tough.
“The banks have got a much better position because they have close relationships with customers and have direct contact with them. It is not intermediated business so they don’t have the multi-channel conflict.”
The position for fund managers is less clear. In the direct market, ability to influence flows through third-party platforms has been stifled by the FCA’s platform paper.
Fidelity operates an open-architecture platform and investment management business side-by-side, barring some platform businesses that also offer multi-manager or discretionary investments.
JP Morgan had offered a range of funds through its own-brand platform until earlier this year but withdrew from open-architecture in January, arguing that only a handful of investors were using it to invest in non-JP Morgan funds.
Fund manager Threadneedle rolled out an online self-serve option for existing clients in 2012 and most fund houses have a direct Isa investment and self-administration option available through their websites.
But some fund managers are believed to be in the early stages of exploring the possibility of working with platform technology providers to develop their online proposition.
Okell says fund managers that think outside the box can build platform technology around their core offering.
He says: “Some will look to develop broader investment propositions. 7IM has built a platform on top of fund management and the discretionary service and come from a different background to compete with existing platforms.”
But Waller says fund managers are unlikely to go direct with a full open-architecture proposition.
“In this country, for the most part, we don’t respond to asset managers selling direct. I was surprised when JP Morgan went into that market.
“Fidelity is different because it has a huge direct operation in the States and because of that it knows how to do it.
“It is the exception to rule. The UK market is about brokers and independent advice – something between us and the supplier.”
There is a clear trend towards institutions seeking to get closer to clients in the long-term savings and investment markets and this is likely to accelerate over the next 12 months.
Retail banks are developing new business models to serve their mass-affluent customers.
The core of the propositions will be online but this might be integrated with telephone based support – either way these will not deliver advice with a capital A. In fact they may attempt to leverage the guidance principles, which are being developed by the FCA.
Irrespective of previous misselling issues, banks are still well positioned in terms of customer knowledge and interaction. And in the retail investment market – where national brands are few and far between – it would be unwise to underestimate their potential reach.
Most of the major insurance companies are also considering deploying direct-to-consumer propositions. Their challenge will be one of attracting new customers given that most existing policyholders are clients of advisory firms.
At the same time, insurance companies, asset managers and platforms are taking stakes in advisory firms. And advisory firms are starting to deploy platform-based non-advised solutions to cater for clients wishing to carry out simple transactions.
They are also building their own investment solutions and in some cases their own platforms.
I think this almost frenetic activity is very exciting and pretty much in line with the FCA ambition to see a market where competition works in the interests of customers. Having said that, there are inherent risks when firms change position on the value chain. For example, the conduct risks associated with face-to-face advice can be avoided by technology deployment but the technology itself may create systemic risk.
Malcolm Kerr is a senior adviser at EY financial services
In reverse: How JPM scaled back its platform offering
In January, JP Morgan announced it would no longer offer third-party funds, exchange traded funds or bonds through its direct platform.
Since March, the firm has only received new money into funds manufactured by the group’s investment arm JP Morgan Asset Management.
It says a review of the business showed only 2 per cent of investments into the platform were going into non-JP Morgan funds.
The change effectively saw the firm revert to focusing on its core investment fund service.
Dave Penny, managing director, Invest Southwest
It makes sense that banks would want to do this. They have immense books of clients and have huge amounts of information on those clients. There are all kinds of firms, including IFAs, that are looking to fill the gap left by the decline of branch advice. But the big banks will look to fight back and will want to find a way to connect again with those clients. Their track record has been so poor in many cases that it is likely any solution will leave people with poor quality, expensive products.
Peter Chadborn, director, Plan Money
Institutions with client books but little ongoing relationship will undoubtedly look at technology to reconnect with clients. In fact with the banks in particular it is a surprise they have not done this sooner and in some respects it seems they are late to the party. They will also face a challenge because many need to repair their reputation with consumers and that is hard to do when the brand becomes more online and branches continue to close.