Although observing the direct platform market over the last 6 weeks has been like a stroll through a souk, we think price will largely converge as it has in the adviser space and the more interesting structural shifts deserve some hawking around.
When all trading activity, tax wrapper fees and other event-driven charges are taken into account, we expect a range of 30-50bps to be the new norm over the next two years.
Of course the clean share price saga is still to be played out and, as yet, attempts to explain Total Cost of Ownership with consumers remain untested. What is certain is that the gloves will come off in March when Hargreaves Lansdown favoured 27 funds become public domain and those managers in question field angry phone calls from every DFM in the UK.
The self-direct market has grown since the RDR and we anticipate an acceleration of this trend. AUA were £116bn as at Sep 13. We estimate this will increase to £235bn by the end of 2016.
A big unknown remains the fund manager response… how to go direct in a world when most managers are more disintermediated than ever?
Fund managers with direct books have experienced accelerating run-off levels since RDR. With pricing under public scrutiny more than ever, the “good old” days of 1.5 per cent feel dated.
We anticipate some new platform propositions and developments this year will come from the fund management community – Fund Manager Response Mark II – as J.P. Morgan’sWealthManager+ fizzles out from an open architecture perspective. The Big 10 have circa 10 per cent in non-advised assets today – we estimate this will grow to nearer 30 per cent. Whether that’s over three years or five years is impossible to say.
In a competitive D2C market, where the average cost of customer acquisition can loosely be averaged at £200, the connection between DC and D2C will be a substantial competitive advantage.
Sharesave schemes are interesting to watch, creating pockets of wealth amongst some employees, and nervous employers are thinking about wealth and income diversification.
One FTSE-100 company told us about much greater take-up of structured roll-over options for the 2012 sharesave maturity they had with 20,000 participants, 115m shares in play and an average gain of £8,300 putting many participants in a CGT position. Unsurprisingly this company has corporate Isas gathering pace. And when these employees leave, they turn into ‘retail’ customers.
We suggest direct market developments will increasingly draw on imitation, not education. Guidance is a huge theme. Bestinvest, Fidelity and Trustnet do this best and we would like to feel the regulator will make a prediction of increased clarity around guidance a reality.
In the wake of all the consumer press interest in platforms, I have talked to many investors who have asked for a steer on their platform choice and usage.
We expect to see a greater demand for task-based advice amongst those typically self-directed investors for those events when clearly an expert pair of hands is needed. Thirty four per cent of UK investors leave all or most of it to an adviser, 29 per cent are entirely self-directed and 37 per cent are “mostly DIY”, seeking occasional advice.
Our rigid industry ‘channels’ do not reflect this clear consumer need and behaviour pattern. With the thirst for ‘annuitised revenue streams’ driving many adviser firms, I wonder who will lead the charge on this?
Surprise, surprise it’s all about ease and convenience and this year, really for the first time, we heard stories of consolidation, purposeful aggregation and a clear sense that people were choosing a ‘one stop shop’.
Fifty five per cent of those consumers most likely use a platform for their next investment say “I like the idea of having all my investments in one place” – more than any other reason given and up from 52 per cent last year. “It’s easier to do it this way” is the next most popular response at 49 per cent.
This isn’t just a fluffy feel-good story. The highest average account size in non-advised land is £250,000 and that is a Sipp company which almost has a direct book by accident.
But this battle takes time to win – platforms report it takes four to six years to cultivate a ‘toe in the water’ into a dedicated customer who entrusts their full wealth to you.
2014 is shaping up to be the year of the Old Woman in the Shoe – with the ‘only in financial services would someone come up with this term’ orphans.
First there are bank orphans. More than 5,000 advisers have reportedly left the bank channel in 2012.
Then we have IFA ‘orphans’. As at January 2013 we estimated there were circa 600,000 customers on advised platforms who had not had their portfolios touched for the last three years.
We can see a slow drip feed of these customers into the self-directed channel. Twenty per cent of monies from fund managers’ direct books today is finding its way to direct platforms. Deloitte’s estimate of a 5.5m Advice Gap has been much discussed – whether indeed one calls this an advice gap, a sales gap or an investment gap, perhaps we can at least agree that there is a bloody big gap?
In response to this migration, life companies will launch direct to consumer propositions this year which lead to very narrow guided architecture or multi-asset funds. With guidance on the rise, fund shortlists getting shorter, and in-house investment solutions increasingly being woven into the platform fabric, the direct market will only exaggerate problems of capacity and concentration being seen in the advised space.
This year we do not anticipate great changes to market shares – the top four platforms hold 58 per cent of assets; the top six hold 62 per cent.
Aggressive newcomers will be terriers around the ankles of the big guys this year.
Terriers have a painful bite and we don’t underestimate them. But to really shake this market up we think we’ll see a big international player come in and really let rip.
A price war? So far, the souk has been more like a gentle British public school fete. My friends, we ain’t seen nothing yet.
Holly Mackay is managing director at The Platforum All data sourced from The Platforum’s Guide to Direct Platforms and Investors. A preview of this report is available at www.theplatforum.com/research