St James’s Place, adviser networks including Sesame, Openwork, and Intrinsic, and Hargreaves Lansdown are set to emerge as the winners in the changing distribution landscape, according to research from Barclays.
In an analysts note, published today, Barclays argues large advice firms and platforms are set to succeed post-RDR as fund managers lose control over distribution.
According to the report: “Pre RDR, the manufacturer determined how a typical 150 basis points annual management charge was divided up. In an unbundled world, this power appears to be shifting towards larger advisers and distributors.”
It estimates advisers’ share of the value chain will increase from 33 per cent to 48 per cent.
Among adviser firms, it pinpoints Sesame, SJP, Openwork and Intrinsic as the most likely to grow adviser numbers. It says: “IFAs realising en-masse they can no longer operate independently creates opportunities for a number of key players.
“SJP has a business model in which it is able to pay its advisers an initial commission of 3 per cent and an ongoing amount of 0.5 per cent per year. This is RDR compliant, as SJP only sells its own products. This structure is very attractive for IFAs looking for a small career change, and we therefore expect recruitment at SJP to continue to be strong.”
Barclays also predicts growth in the direct to consumer market. It says Hargreaves Lansdown is most likely to benefit from orphaned clients.
It says that Hargreaves management has given analysts “clues” that pricing will match earlier Barclays predictions that charges will be based on a sliding scale proportion of assets.
Barclays published an analysts note in Septemeber which suggested Hargreaves would need to price on a tiered basis from 70-35bps maintain its current profit margin.
Hargreaves’ head of financial planning Danny Cox has told Money Marketing the firm would soon reveal its tiered pricing. Money Marketing understands Hargreaves’ new pricing model will start at around 70bps.
Barclays adds large platforms in both the advised and D2C market will gain access to the best preferential share classes.
It says: “It will be interesting to see what sort of funds are offered with super-clean discounts. We believe it is most likely that any funds which have capacity issues or soft-closure are unlikely to offer any superclean discounts. We also believe manufacturers are only likely to offer these super-clean discounts to relatively few platforms or distributors who genuinely influence flows. This should therefore be a source of competitive advantage for Hargreaves and will be marketed as such.”
It adds if discounts earn funds a slot in the Hargreaves Wealth 150 it could raise regulatory concerns. Barclays says: “One pushback might be that it is perhaps not in line with the FCA’s hopes of making fund selection aligned with consumers’ best interests, if funds can give up some of the economics to be included in a list that influence flows.”
Barclays’ analysis also notes asset managers are likely to have to accept lower profit margins.
It predicts fund managers with the scale and capacity to offer preferential share classes in order to secure flows will insulate themselves by securing a larger market share.
It adds as consumers become more influential as fund selectors, as direct investing rises and advised sales fall, fund groups with large marketing budgets will be positioned to succeed.