Peter Hicks has seen at first hand the evolution of the IFA market and, despite the regulatory changes occurring over the next few years, he remains remarkably upbeat about the industry’s future.
Fidelity head of retail distribution Hicks joined the fund manager in 1986 as one of a team of six answering customer queries and taking orders over the phone. He recalls that it was a very different business to the one he now overseas, with £400m in assets under management across just 11 funds. Speaking to up to 80 investors or potential investors a day was a good introduction to the job and “a quick way to get a good idea of how investors think”.
After two years, Hicks joined Fidelity’s newly formed IFA sales team and says this is a market the firm has been keen to grow ever since. In 1991, he left Fidelity to join Equity and Law, a move driven by his desire the see how insurance companies work. Two years on and he was back in fund management with Framlington Asset Management. His time there included a three-year stint in the US and this was a real eye-opener in terms of looking at how distribution works.
His role at Framlington coincided with changes that many UK IFAs will now be familiar with – the move away from commission to fees and recurring income – and he says that while the market clearly benefited from this, the transition was not a seamless or straightforward one as is sometimes assumed. “People assume it just happened overnight but I know firms that had three false starts.”
Hicks is not a critic of the retail distribution review and says it will benefit IFAs as well as businesses such as Fidelity and FundsNetwork. “As a product provider we have to compete on the quality of what we offer and on price, as opposed to bells and whistles, and there is no commission bias. We really support that.”
In 2003, Hicks rejoined his old emp-loyer as head of the fledgling Funds-Network, a technology that had not yet been dreamt up when he finished his first stint. “We had only just gone through the phase of having to explain what a fund supermarket does and how it works. It was still at the stage when you got terribly excited when you added another fund provider to the platform,” he recalls.
The platform celebrates its 10th anniversary this year and Hicks is optimistic about its future. When he joined, it had £1bn of assets under administration. At the end of March this year that figure was £31.3bn. Hicks says: “This is not a shabby rate of growth but I think it will accelerate more than that.”
The biggest issue on the horizon for the platform is the FSA platform review. The deadline for industry responses passed last week and Hicks says the ongoing consultation can make it difficult for the platforms to know how to progress.
The development of FundsNetwork is a continual process with additions to the tools and enhancements, such as electronic document delivery, due to be added this year. But Hicks says the extra regulatory requirements for platforms are still by and large up in the air.
“There are certain things you know are going to be in there. Adviser charging we know, so we can get on with building an fees and cash model to facilitate a flexible adviser charging model.”
But echoing Donald Rumsfeld’s words, he says it is the unknowns that cause the problems. The issue of rebates from fund managers is of particular interest to all platforms and Hicks says this could effect the costs to clients. “Are we going to be able to continue to receive fund provider rebates? If we are, that’s great but if we are not, then it has the inevitability of an increased cost to the consumer. You have got to charge someone. If you can’t get a rebate from the fund provider, there are two parties left, the adviser and the client.”
The argument between bundled and unbundled providers will go back and forth this year but Hicks says the answer is perhaps not an either/or approach but to allow both models to exist. “For the unbundled platforms, the costs are there for all to see but they are not always easy to aggregate. With the bundled model, you have got almost the opposite thing. It is perfectly clear what your total is. What you don’t know is how that is broken down and who is taking what. That is easily solved – as a regulator you just put in a disclosure standard to be consistent across both types of platform.”
He says this would also bring the rules for the platform business in line with industry practice. If IFAs have high-net-worth clients who want unbundled costs with wide-ranging investment freedoms, the option is there. For the majority of clients who want a cheaper, bundled service with access mainly to mutual funds, that option would also be there. “A lot of IFAs have a combination of massaffluent and high-net-worth. For genuine high net-worth clients they use a partic-ular platform that suits that segment and for the mass-affluent they use a different platform. So we are seeing it already.”
But despite any short-term problems the industry is facing in the run-up to 2013, Hicks is certain platforms are going to be the centre of the industry in future. “Platforms will be absolutely central to making the RDR work. For adviser charges, if you are a small fund provider, investing in the systems and operational complexity necessary to provide adviser charging, it is just not what you would want to do. Platforms are in the business of doing this, so let the platform make those rather large investments and act as fee collection agent for the adviser. That will be one of the platform’s roles.”
This also applies to IFAs, as platforms will allow advisers to offer different charging structures depending on their business model. Hicks says: “Do you want a GDP amount or ad valorum? Do you want that yearly, quarterly, monthly? It is up to you to decide that with your client. The provider will no longer have any influence and that is one reason why platforms are going to be so central.”
Born: Ilkeston, Derbyshire, 1960
Lives: Maidstone, Kent
Education: Ilford County High
Career: 2008-present: head of retail sales, Fidelity; 2005-2008: head of IFA sales, Fidelity; 2003-2008: sales director, FundsNetwork; 1993-2001: IFA sales director, Framlington; 1991-1993: Equity and Law; 1988-1991: IFA sales team, Fidelity; 1986-1988: telephone contact centre, Fidelity.
Likes: Honesty, shoes, good food
Drives: 1999 BMW 323i
Book: History of Western Philosophy by Bertrand Russell
Film: Enchanted April
Musician: Freddie Mercury
Career ambition: To be a part of getting Fidelity back to number one
Life ambition: Continued happiness
If I wasn’t doing this, I would be…An IFA, there is a fantastic opportunity coming up