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RDR: Platforms must get on with it

We at Novia were delighted to see in the much anticipated recent RDR papers that the many good things we had been calling for had not been watered down by pressure from elsewhere in the industry.

It is worth bearing in mind the whole thrust of the RDR is to get better outcomes for consumers and once we get over the pain that ‘change’ inevitably brings, the future looks brighter for all of us.

The industry needs to re-build trust amongst consumers and core to achieving that goal is the  principle of transparency which the RDR champions. As part of that Adviser Charging is now agreed and will deliver transparency in how much advisers get paid but I really cannot understand the attitude of some platforms who are sticking their heads in the sand and resisting making the arrangements between fund managers and the platform equally transparent – customers should be able to see what is happening to their money and what they are paying for. When someone resists transparency there is always a reason for it – just ask our honourable MPs – and it is always vested interest.

As well as lack of understanding of who is getting paid what, the FSA also points out the potential for opaque deals between fund managers and platforms to distort the outcomes to clients for product choice, how portfolios are constructed and (mis)guided architecture (I never really have understood this one). Let’s all hope the FSA sticks to its guns and insists upon the arrangements between platforms – which are there to give access to the wider investment market after all – and the asset providers being clear to all and leaves no room for hidden arrangements and bias to creep in.

We are also delighted to see that the FSA has said that it plans to make re-registration between platforms mandatory. We are only disappointed that they are not insisting upon this until 2012. Just to be clear, the work in re-registering assets onto a platform is the same as re-registering off. The platforms that are resisting it today are doing so only out of putting their own interests ahead of those investing and they choose to hide behind complexity, systems development etc etc.

So my advice to the platform market is , let’s welcome the good things in the RDR and to those that are resisting change – accept the inevitable and get on with your systems changes (you’ve got a lot to do in a rapidly decreasing time frame).

Bill Vasilief is chief executive at Novia.

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Comments

There are 22 comments at the moment, we would love to hear your opinion too.

  1. David Ferguson 6th April 2010 at 1:57 pm

    Wise words. Ditto all around.

  2. Julian Stevens 6th April 2010 at 2:22 pm

    Who are Novia? In what way is their platform any different from all the other established platforms?

    I’ve never received any contact from anyone at Novia or seen any articles about them so I’ve no idea what their proposition might be. Perhaps they’re entering the game a bit late in the day and will never gain significant market share, as happened with Selestia, despite coming up with all sorts of fancy risk modelling systems which many IFA’s just didn’t have either the time or interest to try to get their heads round.

    Then again, Novia may turn out to be a rip-roaring success. Who knows? For now, it’s just another name somewhere on the fringes.

  3. John Blackmore 6th April 2010 at 2:50 pm

    Provided neother platform nor wrap are allowed any form of rebate I’m in favor. I would have thought that additional shares classes would solve this problem but some from the wrap world seem to want to continue to use rebates. Hopefully the FSA will not allow this and we can move on to a world where the consumer can see the cost of the fund, the cost of the platform and the cost of the advice. And, if of course, they don’t want or need the advice they can simply deal direct with the wrap or platform.
    It would surely be wrong if some wrap providers were to insist that client had to deal through an adviser.

  4. Julian – maybe you dont have the time, but any cursory glance at freely available sites -eg Platforum, Which Platform, will tell you quite a bit about Novia, and they are very competitive, as are Ascentric, Avalon, & Nucleus. I use Transact by the way, but under due diligence etc etc I cant rule out a change.

  5. Peter Ludberry 6th April 2010 at 5:35 pm

    Talking on transparency – has anyone seen the new Alico RDR friendly platform that’s been launched today?.

    Knocks the rest for six!. They are also putting themselves on the line by offering 33% of their sole charge (.75%) if the funds do not perform.

    Clearly, the others will have to follow…

  6. Julian, to answer your question, my 2 minute due diligence: Novia seem to be a genuinely independent wrap, though the availability of investment seems to be tied through agreements with providers (i.e. very wide range, but not everything); can’t make out whether bundled or unbundled pricing from a simple look at the website though…

    I *do* think it would help if MM and the rest of the trade press were to concentrate more on providing detailed comparisons of the Platforms, state of RDR readiness etc – rather than all these infomercials!!!

    I mean, why not just let Bill, David F and others from non-LifeCo wraps answer IFA questions like this?!?

  7. Nice to see Julian is his normal self…. highly informed about the market…..

    I personally blame the FSA! :))

  8. All this crap ! It’s an unwise man that knows the cost of everything and the value of nothing….or something like that.

    Consider what every platform provides against what was available for investors just 10-15 years ago. That’s not good enough for the FSA – now they want the platforms (having spent millions on the development costs) to manage on virtually nil profits.

    The fact is that it is regulation and the FSA that now weighs heavily (directly and indirectly) on the cost of financial products. Someone has to pay for the inflated salaries, gold-plated pensions and other perks of the FSA, FSCS, Ombudsmen, ICO and tens of thousands of compliance officers. I’m all in favour of getting rid of the cowboys and also some sensible oversight of the industry but it has all got out of proportion – the FSA is a disastrously incompetent, monstrously expensive, self-serving quango which has added massively to the costs of every financial product and associated advice when needed.

    And, when the FSA has driven every last IFA out of business, their rulebook will be powerless in preventing the banks from ripping off customers in the future.

  9. To answer Man In Black, Novia is an independent open architecture wrap with a 100% unbundled pricing structure ( all rebates are passed to the client). The wrap is fully RDR ready with clean air between the cost of advice, wrap & Investment instrument. ( ETF, Investment trust,collectives, equities, Hedge, cash accounts, structured products etc)

    There are a number of other features unique to the wrap such as a gross nominee account which is fundamental to clients investing via SIPPs either Novia’s or an other, Third party offshore bonds, Section 615, Qrops, etc. This can make £1000’s of difference to the client

  10. Hi Paul, that’s genuinely helpful. In a few short sentences, I think you’ve told us all a lot more about your proposition than your colleague’s infomercial did! Many Thanks.

  11. @ Paul B
    I think Ascentric offer gross nominee as well so not “unique”.
    Agree with MIB – what is needed is easily comparable info (platforum and market watch are doign this i think) – some of our most time consuming research has been working out the best “host” for clients assets; and im still surprised that some advisers seem to think this is an unnecessary piece of an individual audit trail though, when it can save clients thousands of pounds. Its an ideal way of demonstrating added value surely.

  12. Nucleus also offer gross nominee these days. For what it’s worth, if I had my way the word ‘unique’ would be banned from financial services promotions.

  13. You must be joking 7th April 2010 at 1:17 pm

    Here we go again, another “platform provider” shotting from the hip because “unbundled” suits them – nice to see you here again also David F!

    Hold “deposit accounts” on a platform – idiotic, just a means for the IFA to gain greater ongoing fees – I smell trouble!

    We already know that Nucleus (holier than thou – unbundled) is more expensive than, say, SIS (running with the devil – bundled) and I don’t doubt for a minute that Novia (I thought they made hand cream???) will be the same.

    Its quite amusing really – we only hear from these more expensive platforms when the regulator (in its wisdom) grabs the wrong end of the stick….

  14. You must be joking

    You must be joking!!

    Do you know how many £ billions languish in low yielding accounts through inertia?

    Holding cash accounts on a wrap facilitates the movement from one great rate to another without the need for money laundering or applications being completed. IFA’s are now able to actively manage cash for those clients who are either too busy or too lazy to do it themselves.
    The added advantage of buying as acorporate is you are often able to secure better terms.

    More than happy to have the debate with you on bundled Vs unbundled having sat on both sides of the fence

  15. Well it seems I am not alone. “You must be joking” makes some valid points, as does Bill Wells.

    But without wishing to raise hackles or blood pressure can someone please explain why unbundled complication (at higher cost) is so much more preferable than bundled (and less complication – for the client) when total costs are fully disclosed.

    In other words with a bundled contract if the client hands over (say) £1,000 all he really needs to know is how much overall is being sliced off and what exactly is being invested on his behalf.

    If that is wrong or unreasonable please let me know. But I beg you, please don’t use the fatuous argument that the client needs to know every small detail. In the vast majority of cases clients (in my experience) read hardly anything – and certainly not the small print. I cannot conceive that a client would be happy to pay more for a detailed and minute breakdown. “Dear client if you have it bundled you’ll get £960 invested, but if you have it unbundled you’ll end up with £940 (for exactly the same advice).

  16. You must be joking... 7th April 2010 at 8:24 pm

    Paul
    You ask “do I know how many billions…” well, for my clients, none! But then they have a dedicated IFA.

    Do I charge them for this service? No

    Would they benefit from holding these accounts on a platform? In my opinion, No

    You state the “added advantage” of buying as a corporate – I assume you mean “group rates” – maybe add 0.25% but then take away the platform charge….

    Of course, even if any added return is obtained, this will be at the potential loss of the depositors compensation scheme…

    Again, I smell trouble…

    As far as a debate on unbundled vs. bundled goes… fire away either here, or in either of the pinks 🙂

  17. You must be joking 8th April 2010 at 9:09 am

    Harry

    I ALWAYS make valid points, and will be putting a great number of them to the FSA in my response to the platform discussion paper.

    I’d suggest other IFAs who can also see the wood for the trees – i.e. who ignore the hype of the more expensive platforms for whom unbundled is a godsend – do the same.

    🙂

  18. There are a number of points to pick up on.

    If you buy a cash deposit through a nominee company you will retain your individual compenstaion entitlement.

    Bundled Vs unbundled is not just about price although for larger investments an unbundled wrap can be significantly better value where the wrap charge maybe only 15bps. I have seen rebates from fund managers to platforms as high as 95bps.

    The real issue for a bundled price proposition is it is reliant on rebates to run the business model. This in the main restricts you to high charging retail OEICS. What happens if you want to buy an ETF or the new Fidelity China Investment trust or blend with a structured product? There is no rebate from these instruments so they are not available. What happens if a fund manager refuses to pay an inflated rebate the platform maybe tempted not to incude it in its range of instruments restricting access.

    If you have to go off platform to access this you increase the paperwork.& potentially the cost to the client

    What happens if you want to move your clients to cash because of another Lehmans debacle no rebates no trail etc Can you do it?

  19. You must be joking 8th April 2010 at 12:20 pm

    Paul

    I will take your points in order…

    DCS – you initially taked about “corporate” accounts, hence my comment re the DCS. Irrespective of the DCS cover (or not) you have not covered my comment regarding IFAs and platforms charging for cash deposits – over to you on that one.

    Bundled vs unbundled – you talk about a wrap charge of 15bps compared to a rebate of 95bps, which looks dramatic, but surely as an advocate of unbundled you should have broken this down – you either want to be transparent or you don’t!

    You haven’t confirmed whether the 95bps includes and adviser remuneration, you haven’t confirmed the fund rebate being given up to achive a 15bps wrap charge, etc etc.

    For example, if a fund has a TER of 1.5% and wrap A gets an unbundled rebate of 0.5% and charges 15bps the total cost to client is 1.15% plus adviser charge of say 0.5% = 1.55%

    If wrap B gets a bundled rebate of 0.95% but this includes 0.5% of adviser charge teh total cost to client is 1.50%

    Remember, what the client pays is the SUM OF THE PARTS, not the PARTS OF THE SUM.

    ETFs and Structured products (to some degree one and the same as BOTH have counterparty risk!) may not be available – but these WILL be the next scandel… but both can be bought “off wrap” thus avoiding additional wrap costs – why pay an extra (even) 15bps as per your example to access these?

    The same goes for investment trusts – specifically the Fidelity China, which would only ever be a “nominal holding).

    As far as being “off wrap” increasing costs – this is just a counter to the increased costs of holding certain assets “on wrap”.

    And finally, moving to “cash” – yes, we can move clients to cash funds and maintain our adviser charging (no bias to any asset class remember), and as far as another Lehman is concerned – please see my previous comment regarding ETFs and Structured products – it seems we agree on at least this! 🙂

  20. Duncan Disorderly 8th April 2010 at 1:33 pm

    My favouratem wraps are the nice chicken fajitas that you get from sainsburys

  21. Crikey you really are a strong advocate of bundled pricing, almost to the point of representing it in actual fact your last paragraph leads me to believe you probably are!!

    Cash deposits on a wrap have worked for the adviser & the client. An analogy or an example are usually the best way to get a point across. 3 clients between them had in excess of 6 million languishing in an account earning 50bps. These were very busy successful clients. The IFa now actively manages their cash & net of charges gets approx 3% moving from one fixed rate to another without the need for signatures or money laundering. The clients are delighted as they have no involvement & the IFA has protected that money from the banks.

    Now a few analogies. If you were going to buy a car would you restrict yourself just purely to a Ford dealership (long only daily traded OEICS) or would you want to shop around, choose a vehicle that suited your purpose perhaps a Ferrari ( hedge) or a BMW ( Structured Product ) or a skoda if you wanted efficient relaible no fuss motoring ( ETF). You may still elect to have the Ford but surely you wouldnt restrict your choice. This is the primary differnce between bundled & unbundled

    To use a further analogy at the turn of the milennium ( I suspect when your proposition was first conceived) ) Ipod’s were the rage ( have all your music on one device). Now people have moved to Iphones where you can have your music ( OEICS) send emails( ETF) text ( Equities) play games( Hedge) access the internet ( cash) or any one of a number of apps on one device.

    My final analogy to try to emphasis my point.If you were to buy a new TV today would you choose to have one that was HD ready or not. I suspect the former so why would you choose a portal that was not RDR ready. The changes to the system are so significant it is certain to have an impact on an IFA’s business.

    The example of 95bps rebate was being paid from a Fixed interest fund with an AMC of 1.75%. this potentially only pays 35bps trail so the platform beneifts to the tune of net 60bps. This means the client would be 45bps better off via a wrap with a charge of 15bps.

    This really is my last point so I will leave the final word to you but I suspect the next scandal will be net nominee being recommended in gross wrappers with the client paying an unnecassary 20% tax on any interest bearing instrument without the means of reclaim!

  22. You must be joking 8th April 2010 at 5:29 pm

    Paul

    I am a strong advocate of providing the client with a cost effective means of accessing investments – and the ongoing management of those investments.

    Nothing more, nothing less…

    Undoubtedly there is millions languisihing in “poor” accounts – inertia has always been a problem, but I maintain that a wrap isn’t needed to access deposit accounts – merely the removal of that inertia.

    I love the car anology – but to use this for bundled and unbundled would mean going into ANY of the garages you mentioned and instead of looking at the screen price, ask for a break down of the components used to build the car, the garages overheads (last accounts should do) and the salesman’s salary package – of course broken down to salary, overtime, commission, pension contributions (employer only) and NI contributions.

    The bundled screen price wouldn’t alter, but now you’d have an unbundled charging structure – is that of benefit to you?

    You’re argument isn’t really about bundled or unbundled pricing, which is obviously what the FSA are currently confusing themselves over, as this is one the unbundled platforms will never actually win (I assume you work for Novia?).

    The points you have put forward relate solely to the choice of investments – hence the constant reference to ETF’s, Hedges, SP’s etc… but I would reiterate, why pay more for mainstream assets (Fords/OEICs) just because the wrap also offers access to assets I don’t want?

    You’re “final anology” regarding TV’s is also excellent… although I would say that the best picture on any of my TVs, all of which run off the same Sky+ box, is that on my B&O Avant, which is infact a CRT… you do realise that HD is only required to bring the quality of lcd’s and plasma’s up to that previously enjoyed on good old “boxes”?

    Your example still doesn’t provide enough information for a true comparison… as you have again failed to mention the “rebate” the wrap with the 15bps charge is achieving from the investment house, not have you added back in the adviser charge. If we assume the adviser takes just 35bps then your apparent margin is down to 10bps and if your rebate is less than 50 bps then you;re still MORE EXPENSIVE 🙂

    You could be right on net/gross nominees as being the next scandal, but I maintain, half the people readin this don’t understand that an ETF carries counterparty risk!

    As far as my proposition is concerned, I’d clarify a few points:

    I am an IFA not a platform provider (so no axe to grind)

    We run 52 predefined portfolios (risk graded) all currently built from ACTIVELY managed funds

    On a quartelry basis we reserach over 3100 funds, including trackers and with no bias, and only 70-80 funds ever pass our criteria.

    Of these 2 are tracker funds – why would I want a market replicating ETF with added counterparty risk?

    From these 70-80 funds we construct our portfolios. and the following quarter – the whole process starts again…

    Oh, and I drive a Lexus… 🙂

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