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Multi savings for IFAs

The multi-manager or fund supermarket concept which is firmly established in the US is relatively new to the UK but all the signs are that the market share of these providers will grow rapidly as more new players enter the market.

This trend is further fuelled by the fund management groups looking at this new breed of provider as being the sole or at least primary distribution channel into the retail investment market while they concentrate their efforts on the discretionary IFAs.

A number of industry commentators have predicted that only two or three – two seems to be favoured – multi-managers will survive but frankly I find this to be nonsense. The prediction is based on the US experience but it is too simplistic to extrapolate like this.

The UK is a highly fragmented marketplace, currently supporting over 200 fund management groups, and the predictions of such a concentrated model seem fanciful.

The early days of multi-management have seen the battle initially centre on the number of funds on each platform – even if the majority of funds are inactive in terms of new business flows – but the focus of attention has already changed.

The great benefit of having a single point of contact for IFAs when transacting investment business is the dramatic increase in operating efficiency that this can bring. There are also tremendous benefits to investors having all their investments managed in one place. I would guess that many private investors are totally confused and frustrated by the barrage of paperwork hitting them at different times of year and containing similar information presented in different ways, leaving them totally baffled.

As a natural consequence of the drive towards efficiency, there will be a rapid increase in the use of technology, and e-commerce will finally become a reality after many false starts. This is not just because of time savings but more because of the need to get things right first time and avoid the need for rework or requests for further information. Perhaps the biggest gripe that IFAs have is the amount of time and effort it can take simply to get portfolio valuations. We hear stories of some providers taking weeks, even months just to provide a valuation. It is astonishing that it can take weeks just to tell a client the current value of the money they have invested.

The modern e-enabled multi-manager can resolve these problems at a stroke and this kind of technology will become the minimum just to play. Providers that cannot make the leap will fall by the wayside and the big problem among the traditional providers is, of course, dealing with legacy systems.

Selestia has conducted a number of studies into the savings that IFAs can make purely by working with a modern efficient multi-manager platform. Our estimates consistently show that IFA firms can make administration savings of 30 per cent-plus if they make this move. Transition is never easy but the trend is already established and we will see more and more IFAs making the leap to a single platform.

Perhaps the biggest problem IFAs currently face is how to pick funds and how to construct investors&#39 portfolios. The old tried and trusted with-profits solution now looks terminally flawed and the Equitable Life debacle is just the first to highlight the reality of with-profits – it always was a high-risk investment solution masquerading as low risk.

I find it impossible to see how with-profits companies can ever rebuild their reserves because the reserves were in the first place substantially built by penalising early leavers from regular savings plans. This option is no longer open and I firmly believe we are experiencing the beginning of the end for with-profits.

This opens up a big opportunity for the new providers which can add value with a truly professional approach to modern portfolio construction and the new generation of tools will help with this.

IFAs are becoming cynical about providers marketing “flavour of the month” funds or themes and, in the end, this approach is in danger of badly damaging the market. It is the multi-managers which are so far leading the way in portfolio construction as it is a natural fit for a platform offering a wide range of funds.

We recently began to see a surge in providers offering IFAs online tools to help with portfolio construction and monitoring. It is interesting that this feature has become so widespread so quickly and you can now see a race developing to deliver new tools.

At Selestia, we recently held a series of dinners for IFAs where the future of the IFA sector was debated. Probably the two biggest themes to emerge were the problems in getting P I insurance and the need to continue to drive the industry towards professionalism.

These two issues are clearly linked and I believe that we will see providers deliver more help with the most complex problems IFAs face, freeing them to focus on the core activities which develop their business, marketing and customer service.

The reader might think that I am being overly optimistic in my views on the future of multi-managers and looking at the world through rose tinted spectacles. But the market is already on an irreversible trend and I expect to see a few more new entrants into the IFA market this year.

The biggest block to new entrants is technology as the systems required are complex and expensive. This challenge has already delayed a number of potential entrants but some will come through. The future of the retail investment market lies with the multi managers.


Odey Asset Management – Pan European Fund

Wednesday, 12 February 2003 Type: UCITS Aim: Growth by investing in European equities Minimum investment: Lump sum euros £100,000 Place of registration: Dublin Investment split: 100% in European equities Charges: Initial 5%, annual 1.5% Commission: Initial 3% Contact:

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