Fidelity's move to offer financial incentives to IFAs and their clients for re-registering investments on FundsNetwork has unsurprisingly come under fire from its fund supermarket rivals.
Their main criticism is that Fidelity's decision – which will see it pay IFAs £50 and their clients £25 for consolidating holdings on its platform – is tantamount to buying business that it would be unable to attract otherwise.
There is little doubt that in terms of re-registration, Fidelity is well behind fiercest rival Cofunds. A respectable £224m of Fidelity's business last year came from consolidation but this was less than half of Cofunds' £462m.
Cofunds was quick to see re-registration opportunities and has, according to a number of brokers, done better to develop relationships with many of the major mailing houses which put most of their consolidation business Cofunds' way.
Fidelity, although conceding that its offer makes its re-registration proposition “more compelling”, argues that it is simply trying to ease the financial burden on IFAs, who it says are increasingly realising the benefits of consolidation.
Head of IFA business Stuart Holah says: “More advisers than we thought see re-registration as a way of helping them but many say they cannot spare staff from their business-gathering activities to undertake re-registration work. The offer will help them reduce the operational costs of the administration involved.”
As re-registration pays no initial commission, there is little doubt that £50 a case would be attractive to smaller IFAs in particular. Keen to avoid targets, Fidelity will only say it would like to be “pleasantly surprised” by demand. But its rivals point out that, in most cases, its offer will be uneconomic, as FundsNetwork will only get 0.25 per cent of the annual management charge of re-registration cases which average £5,000-£7,000.
Selestia director Bill Vasil-ieff says: “£75 is a lot of money to give away for the business. On a £5,000 case, it would make £12.50 a year. It seems odd and I do not think £25 will be sufficient to make an impact on what is an important investment decision for clients. I recommend Fidelity tries giving away a carriage clock or a kettle.”
Vasilieff says he believes the offer may work in the short term but once it expires on June 30, he expects FundsNet-work's re-registration streams to revert to their normal level. As a result, he does not expect other supermarkets to try and match the offer, even if, as seems likely, demand proves strong and Fidelity extends it beyond the current deadline.
Cofunds says it has no intention of following Fidelity's lead, arguing that it would rather put resources into other areas which help IFAs. Marketing director Rick Andrews says: “We believe in investing in systems and training to help make each consolidation exercise a success. This is the approach we apply consistently on an ongoing basis throughout the year, not just as a short-term promotional offer. There is absolutely no way we would make the same offer.”
Not all fund supermarkets are keen to attract re-registration business anyway. Skandia says it will not follow Fidelity's lead simply because re-registration business is, in its eyes, unprofitable. Investment marketing manager Ian Thomas says: “We are not actively trying to chase re-registrations because we are trying to maintain a financially stable business model. Re-registration is essentially loss-making business and it is not something that is part of our key strategy. I hope Fidelity's offer will not form part of IFAs' decision-making criteria.”
Thomas argues that re-registration does not particularly help people with a “hotpotch” of investments to sort out their portfolios.
It is a view that is supported by other industry observers, who point out that offering money for investors' business is only likely to appeal to those with small portfolios.
An industry source says: “Fidelity's decision smacks of desperation about its failure to break into this market properly. Are clients going to be bothered by £25? If you have a £100,000 portfolio, are you really going to re-register it for that amount of money?” This is obviously open to question but there is little doubt – even among some of the supermarkets – that the £50 incentive will have an impact, in particular for smaller IFAs looking to shave costs. With most IFAs under intense pressure for a host of insurance and regulatory reasons, £50 a case will ease their admin costs at a time when they most need help. But it is a different story for the major players which tend to select supermarkets on the basis of historic support.
Chelsea Financial Services managing director Darius McDermott says: “Cofunds has bypassed Fidelity in terms of re-registration and Fidelity, as we have come to expect, is fighting back. But the offer certainly will not make any difference to us – apart from financial help, Cofunds gives support to us in many ways.”
McDermott says Cofunds has gained an advantage by recognising the potential within re-registration and making strides to secure brokers' business. Given that Cofunds pulled in twice as much re-registration business as FundsNework last year, it is an argument hard to refute.
But Fidelity's move could, at a lower level at least, threaten its current dominance in this area of the market. Cofunds has the head start but Fidelity undoubtedly has the financial clout to give it a serious run for its money.