Last month’s platform paper has prompted a flurry of activity from platforms and fund managers eager to try and stake ther claims to be the best positioned businesses to in light of the FCA’s final rules.
The size of the prize for businesses which get this right is clear. The most recent figures from The Platforum shows the total of assets held on platforms increased by 9 per cent in the first quarter of 2013, from £223.8bn at the end of December 2012 to stand at £244.2bn at the end of March this year.
Most of the biggest platforms saw AUA growth at a similar rate seen by the market overall, however, platforms which have got their proposition and marketing right are seeing increases in AUA at a much faster rate. Aviva Wrap saw its AUA increase by 25 per cent in the first three months of the year, while Parmemion and Novia saw their assets increase by 20 per cent and 19 per cent respectively.
The FCA’s decision to ban cash rebates and HMRC’s decision to tax unit rebates mean this is set to be a key area for platforms to target in their marketing to advisers, while the effective end of trail commission in April 2016 is already causing platforms to try and position themselves as best placed to help advisers’ business needs.
Several platforms had already begun the move to clean share classes and they were quick to highlight the fact they are already prepared for the end of rebates.
Alliance Trust Savings took the decision to only offer clean share classes for new investments from 31 December 2012 and managing director Patrick Mill is unsurprisingly very supportive of the outcome of the platform paper.
Mill says: “We have always been supporters of transparency and firmly believe consumers deserve to know and understand the charges they are paying. It is a harsh truth that as a result of these changes many consumers will for the first time realise the true cost of these services. We are looking forward to working with our adviser clients to support them as they work through the transition to the new model, and being part of a much more transparent platform market.”
Other platforms such as Cofunds are also keen to try and steal a march on their competitors with the move to clean share classes.
Cofunds has pledged to have 3,000 clean share classes in place by the end of July.
Cofunds head of fund manager relations Michelle Woodburn says: “Everyone, even those who’ve been playing the platform paper waiting game before acting, need to embrace clean share classes and they need to do it now. Moving to cleaner share classes make things simpler for everyone – the adviser agrees a fee with the investor and the platform clearly states what the investor will be charged for the services provided. Importantly, applying discrete charges for each part of the value chain we will go a long way to helping the value of professional financial advice get the recognition it deserves.
“Our target of reaching 3,000 by July is right on track. It comes at a time when others are barely out of the starting blocks on adopting clean share classes – and this despite all signs pointing to the regulator moving the market in a ‘clean’ direction. Even if HMRC’s move to tax rebates at source wasn’t impetus enough for others finally to embrace clean, there’s no ignoring PS13/1.”
It is not just the platforms that are trying to capitalise on the changes to distribution. Several asset managers, have also tried to position themselves as best placed to do business with advisers in light of the need for clean share classes.
Vanguard head of retail Nick Blake says the rules should produce better long term outcomes for investors and the move to clean share classes will prompt a greater focus on cost and should prompt a move away from active managed mutual funds and the greater use of other investment vehicles.
He says: “Although unit rebates are still allowable for advised retail clients, the administrative burden for platforms and the potential tax inefficiency of this method means this is unlikely to be an attractive option for many.
“Transparency will be an important aid in helping consumers make informed choices. Equally as important, the removal of rebates means that, finally, consumers are more likely to see a level playing field in the provision of non-commission paying products such as low cost mutual funds, exchange traded funds and investment trusts. In essence, the paper is as important for removing a market level product access bias as it is for the transparency it delivers.”
The newer platforms are also playing the lack of legacy business card in their attempt to scoop the new business pot.
Elevate is one platform that is making the most of its lack of legacy business and says it can be flexible in terms of what it offers clients.
Managing director David Thomson says: “For our Elevate proposition most business is already written on our unbundled charging structure so the impact of losing the ability to retain rebates is minimal. There are now over 1,600 clean share classes available for advisers on our platform with plans to add another thousand over the summer.
“The level of interest we have already witnessed in clean share classes suggests that advisers are increasingly embracing this option for their clients. We are seeing a growing trend for both new money to go into clean share classes and for existing holdings to be switched from the rebate paying share classes. Over 40 per cent of flows on the Elevate platform went into clean share class funds during March 2013. We expect the popularity of clean share classes to continue to increase.”
The one exception to this so far is Skandia. The business is using its market share and number of advisers on its platform to adopt a different approach to clean share classes and has instead announced that is to offer unbundled share classes with rebates. With 87 per cent of its assets held through a tax wrapper it says taxing rebates is a side issue and this offers the least disruption for advisers.
Skandia UK managing director Peter Mann says: “Adding unbundled share classes with lower AMCs but still paying rebates where possible provides clients and advisers with a swift and positive solution to the new tax liability on rebates. By operating both unbundled and bundled share classes we will help keep re-registration simple without creating any unnecessary barriers for advisers and their clients.”
One thing all the adviser platforms have to be aware of, however, is the continued growth of the execution-only market. Although the platform paper confirms the new rules will be applied to execution only business, these platforms will not be slow in trying to capitalise on the clarity of costs and will be looking to boost their market share and take advantage of the fall in the number of advisers due to the RDR.
At the same time as many advised platforms were celebrating large increases in their AUA, Hargreaves Lansdown announced a 15 per cent increase in its AUA in the first quarter of this year, including a record £1.8bn of net inflows to take its total AUA to £35bn.
Deloitte recently predicted that five million people will stop using an adviser and all the execution only platforms will be looking to fill this void.