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Supermarket sweep

Some big-name fund supermarkets will fall after RDR

I look forward to the retail distribution review going live. It is possible that a change of Government might tweak things but it seems most commentators think the RDR will hit the FSA rulebook in something like its current form.

From my point of view, the issues could not be clearer. The main thrust of the RDR is transparency and consumer empowerment and, once the cost of advice is separated from the product charges, it frees the adviser to really look at the market and not be hidebound to “chase life company commission” as an adviser I was speaking to recently put it.

I firmly believe that a full market wrap is essential to implement the thrust of the RDR so clear guidelines really should be included by the regulator for 2012. Equally, it will be practically very difficult for advisers to operate in the market without benefiting from the admin efficiencies that a wrap offers.

As the principle of transparency is followed through to platforms, some of the species will become extinct or have to evolve pretty quickly to survive. A supermarket that claims to be free to a client but does not make clear how much of the investment manager charges that are kicked back to pay for platform admin or advice will not be allowed to continue.

It will be a requirement to offer a much wider range of assets than traditional commission-paying unit trust and Oeic funds, a fact that has already been clearly spelt out by the regulators. After the RDR, the fund supermarket will immediately become obsolete in the IFA market – they will be a thing of the past, having enjoyed a brief period in the sun. It will be interesting to see how many of those supermarkets can make the fundamental changes required to their systems on time in order to continue to trade after RDR. My guess is that some big names will fail.

The fact that a platform manufactures and sells its own-label funds in among an “open market” offering should again be made clear to the client. Equally, plat-forms not allowing freedom to re-register client money as and when they want to should also be outlawed.

I acknowledge that the change for some advisers can appear daunting, particularly regarding the need to perhaps sit further exams. But it seems where advisers have bitten the bullet, looked at their client bank and begun to have conversations around the service they give and the move toward fee/trail-based charges, it has opened up a whole raft of opportunities.

We are starting to see the growth of discretionary managers being drafted in to manage the investment piece. Wrap technology and slick admin allows the discretionary manager to manage, the adviser to stay in control of client investment and product wrapper selection and the client to see what they have invested in and how much they are paying.

Bill Vasilieff is chief executive officer of Novia

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Yet another article stuffed with platitudes. Life RDR it is difficult to agree or disagree because there is so little content.
    Transparency: the best place to hide something is out in the open. I agree with the concept of transparency, but how is it to be achieved in reality. Yet more 10,20,30 page Key Feature type documents? Factory Gate Pricing may be a good way of moving towards this ideal – but, after a decade or more of KFDs don’t expect miracles – mainly because too few people are debating the reality.
    “Consumer Empowerment” – no idea to what that refers. In general IFAs deal with the HNW end of the market, so are we saying that most of these people are whimps? Like so much in the RDR documentation, nice phrase, no content.
    I would agree that most platforms are not worth their name. But, they are (meant to be) a commercial operation so charges are inevitable, as is the inclusion of own funds. I’ve never found it difficult to identify own funds, and I doubt if most literate people would have too much trouble either.
    So what we have here is yet more noise in the debate rather than picking up genuine points that can be addressed and debated.
    Such as, how does Mr Vasilieff expect clients to know what they are being charged when there is such a difference between the annual charge and the TER. Now that is one topic that can be addressed in a factual manner.
    If the Annual Charge was the only charge against money invested then we would know costs.
    But does knowing costs improve the adviser experience, or is there something for the client beyond accountancy?

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