The ways UK IFAs are shaping the industry

In Lipper Feri’s most recent assessment of the UK fund market, released a fortnight ago, the fund analysis firm addresses most of the topics expected from such a report.

It estimated the UK domestic market last year accounted for roughly €25.5bn (£20.1bn) in net sales - the best in Europe and “a respectable figure” given the impact of the sub-prime crisis. It predicted the industry will grow at 9.9 per cent over the next five years - slower than it has grown in the recent past, but faster than all other industries on the Continent (apart from Germany’s). And it forecast that UK fund managers’ total assets could more than double to €1.1trn by the year 2012.

But the report also made a number of observations, somewhat hidden beneath the headline growth projections, about IFAs and their impact on the domestic fund industry. For example, out of every 10 funds sold in the UK, eight are executed through an IFA - a remarkable figure and one that sets the UK apart. How has the prominence of the financial intermediary shaped the UK industry as a whole? Lipper highlighted two ways.

First, the foreign share of the UK market - just 5.6 per cent - is quite small, and this is due, the report contended, to UK IFAs’ predilection for “home-grown funds”. The second point is that product development in the UK has been “more sedate” than on the Continent because UK IFAs tend to prefer established funds with proven track records.

The first point may seem remarkable, but it is, in fact, a moot point, according to Lipper chief executive Diana Mackay, as UK regulations have effectively made it very difficult for foreign groups to enter the market. “Until recently,” she says, “there really hasn’t even been a good opportunity. Most companies’ primary route into the UK has been through acquisition - ABN Amro, Credit Suisse, UBS and Deutsche Bank are just a few examples.”

Since distribution share-class rules were changed a couple of years ago, it has been far easier for funds domiciled in Dublin or Luxembourg to access the market, but “there’s going to be some time lag”.

“And it takes time to convince IFAs it’s a good idea,” she adds.

Lipper’s report also claimed UK IFAs are generally becoming more “open-minded” about offshore products and predicted the sale of these funds will increase as more of them gain a presence on fund platforms, which are set to boom in the UK.

By the analysis firm’s own estimation, UK fund assets under platform administration - based on new business and the transfer of existing business - could nearly quintuple from €97bn to €459bn by 2012.

In the case of the second point, what may seem at first like a negative is in fact a positive, Ms Mackay argues.