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MM Leader: D2C and the RDR

F&C became the latest asset manager to declare its RDR intentions this week, predicting growth in both self-directed sales and multi-manager.

It is fair to say no one really knows the extent to which the RDR will ultimately reshape the retail landscape – ask 10 different experts and get 10 different answers, often coloured by the interests of their firm.

F&C says its research suggests both that more investors will want to self-direct their assets and that unbiased advice is one of the most important buyer considerations, articulating the often contradictory signals that firms are hearing in the marketplace.

Big investment firms, which rely so heavily in intermediated sales, are obviously nervous about the radical overhaul of the industry and how they may need to adapt.

We are unlikely to see a “big bang” change to the IFA sector come January 2013. The dramatic predictions often quoted by consultants at conferences are only ever a window into how advisers felt at a particular time – usually a number of years ago and with very different assumptions about the effects of the review.

However, it is good that asset managers are using the RDR as a trigger to take a long hard look into the mirror and decide what value they add to the end-consumer and where their efforts should be focused.

With the eurozone crisis set to cast a continued volatile shadow over markets and a combination of RDR charging changes and political attention putting pressure on charges, there is a lot to think about.

Margins will continue to be squeezed and tough decisions made about underperforming propositions which can no longer be carried. However, investors will continue to pay a premium price for premium products.

Arguments supporting D2C growth are seductive but some caution is advised. The sums involved in effectively marketing yourself can be huge while the assets achieved could well be less sticky.

The current regulatory set-up is already very attractive to execution-only propositions and may well become less so depending on the FSA’s final rules on platform payments.

There is a massive apathy in the UK on regular saving. How are you going to attract and retain the younger, accumulation phase investors that appear the target of such ventures?

As the industry evolves, the intermediary sector should continue to be a very cost-effective and attractive route to market for investment firms with a decent story to tell.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Soren Lorenson 17th May 2012 at 9:28 am

    The majority of IFA’s big and small are essentially retailers. They offer a local presence for the purchase of big branded products and provide the support and service that big companies find so difficult to get right.

    The nearest comparison I can think of is the specialist Hi-Fi shop. People go into the shop because they know they want an amplifier, but they don’t know whats best and need some expert guidance. They may be prepared to pay a premium over buying the product on-line, but as many such shops know, many people take their advice but make the purchase on Amazon.

    In the same way RDR is basically opening up the direct route to market for clients and this is the big problem for most IFAs. In the example above, would the hi-fi shop exist if it charged customers £200 up front for advice? I doubt it. But if it doesn’t do this it risks wasting time with Amazons customers.

    This is sadly why most IFAs are doomed. Only firms whose final product is the advice will succeed and there is only a very tiny market for this (IHT, care, tax planning etc). For basic investment and pensions products you cannot be a retailer when there is no margin on the product you are selling anymore.

    That is a great loss to clients, the local community and adviser businesses. But it’s what Hector wanted.

  2. I guess the future of the IFA depends upon what price the fund managers sell D2C. In the past they have always been careful not to undercut the IFA’s that provide the bulk of their business.

    Will that happen in the future?

    If F&C for example, were to sell D2C with a 3% initial charge that would mean most IFA’s could continue to offer their products to larger clients at the same or lower price than going direct. There is clearly still a business there.

    If they offer it at the same factory gate price that IFA’s get then IFA’s have no future.

    The problem is that there will be a couple of FSCS levys to meet before we find out for certain and I for one am not sure I have the stomach for that.

  3. IN summary, what is going to happen is that for a period of time the fund managers will attempt to sell their funds D2C, but will soon realise that the drop off rate for new business from IFAs will impact on their overall levels, thus reducing the level of investment into the retail markets, thus reducing the availability of capital in the capital markets.

    Simples!

    The destroyers of our industry have moved to pastures new, but the RDR lives on in the minds of those who inherit their positions and is going to be relentlessly implemented, despite dire considered warnings from many industry experts that the “unintented consequences” already identified, that are going to disadvantage millions of consumers will continue to be ignored by these nut jobs running our regulator.

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