So at one extreme, we have the sales-led adviser, historically served by the traditional life and pension providers. Product was king and tax advantages masked the poor underlying investment proposition of the with-profits and unit- linked managed funds.
This old-fashioned model has vast assets but these assets are under threat and that threat is only going to increase.
It is under threat because it does not fit with the changing demands of investors. The investor has no influence over the asset allocation of a with-profits fund. So what are investors increasingly looking for?
Simple transparent product wrappersl A financial solution (for example, retirement) not a product.
IFAs and providers have to respond to this demand and, to succeed, we have all had to and are still making the transition. Most IFAs are at some stage on this transition and the successful provider has to recognise this.
We believe that, by linking Skandia and Selestia, we cover most of the IFAs in this area and we aim to help them make the transition with their business at their own pace.
We want to help IFAs create financial plans for their clients based on risk-profiled open architecture investment portfolios using 21st century technology to help them manage their relationship with their clients in a flexible and transparent way. We want to help IFAs create value in their businesses.
Of course, there are some IFAs who have moved their business models still further and who are embracing this strange world of wrap.
This is the world of the holistic financial planner and there are an increasing number of these IFAs.
But my view is that the reason that the total of assets held under wraps is so small at the moment is that, for the most part, platforms such as Selestia and Skandia cover 90 per cent plus of the needs of 90 per cent plus of the IFAs and 90 per cent plus of clients.
Some of the traditional life and pension players have been seduced by the hype of the Australian market and leapt over the transitional space into wrap. This is a huge mistake. You can be a niche player in wrap but the money is in middle segments. They have no franchise in this area and have wasted millions in their desperation.
At Skandia, we will look to extend our offering in this area by talking to IFAs and the market about what they want – not by trying to import a system from Australia.
So the market is in transition and I hope that the changes caused by the retail distribution review and the platform paper will speed up this process.
Some of the catalysts for this are:1: Separate advice from sales.2: Customer-agreed remuneration. This must be right but it means the IFA being clear about the value of the advice they give and the fees they charge. The provider should not determine the remuneration for the IFA.3: Recognising there is no concentration rule and focusing on suitability for each client.4: Fees can be either by cheque or trail commission – but the VAT anomaly must be sorted out and this removes a barrier to IFAs moving to fees.5: Treating customers fairly and principle-based regulation.6: Education – more professional standards.7: Grandfathering of existing qualifications into new regulatory regimesFor fund managers, I see continuing trends in product development. Bonds have become popular as packaged solutions. To counter-balance recent tax changes, will see more packaging of collectives and therefore more wealth manager solutions.
We are likely to see more IFAs outsourcing fund selection and focusing on financial planning, hence greater demand for multi-manager solutions. It is easy to be an expert in a bull market but this becomes harder in volatile markets.
New packaged products for decumulation. Planning for retirement is different to simply taking your pension. The period of decumulation will be carefully planned, with people aiming to stay invested. People will look to buy a long-term holding where they can live off the income and where there is often a downside floor.
In the US, lifestyle funds are a huge and a growing market for the baby boomers. They represent a big move from the distributor picking funds.
Baby boomers have started retiring in the US and the same demographics exist in the UK. Decumulation funds for many will be different to those in the accumulation phase. This is a massive opportunity.
There is going to be a great deal of change – change for the good. Investors will get better quality advice to help them reach their goals and with clarity over what they are paying for.
Advisers will have businesses which can create real value and a sense of pride in the value they add.
It is also good for the providers and their fund manager partners who can adapt to this change. The interesting point is that not all of them will.