OpinionMay 31 2016

Advisers must hope M&G move is endgame for D2C ambitions

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More than three years on from the introduction of the RDR and we’re finally approaching the endgame for legacy charges.

The catalyst is M&G’s intention to launch a lower-cost online service for 190,000 direct customers who have been paying it premium prices for – in some cases – several decades.

The FCA has stated it has no plans to stamp out trail commission, but direct investors stuck paying higher fees to fund groups may be a different question.

So M&G may have got out ahead of its competitors, but I imagine the move’s also been made in order to get ahead of the regulator.

Two pieces of regulation have set the tone. The first is the sunset clause, which as of last month meant legacy share classes are a thing of the past on platforms – creating an obvious anomaly with off-platform business.

The second is the FCA’s asset management market study, which is expected to look closely at these kind of fees.

I think it’s unlikely that the watchdog would insist on changes to existing charging arrangements – though its pension exit charge cap plans last week show it’s not afraid to rip up legacy business agreements. But encouraging fund firms to offer a route out, as M&G has done, seems more probable.

I imagine these moves are being made to get ahead of the regulator

For intermediaries, the concern is whether these moves will tip over into asset managers cannibalising their businesses. It’s now cheaper to go direct than through most execution-only platforms, let alone via an adviser.

You don’t need me to tell you that intermediaries do a lot more than simply pick funds, but a bigger difference between the advised and non-advised costs of investing isn’t going to help make the case to new clients.

To be fair, opening the service to new customers may just be M&G ensuring it treats all customers fairly, rather than it looking for a big influx of business. And I doubt investors will be eager to split their pots across a variety of asset managers offering such services. Only time, and new customer numbers, will tell on that front.

The issue of complexity could also work against advisers, not least because the service requires investors to move to a little-used share class. This, no doubt, is because cutting fees on the existing share class would see M&G lose money on its 40,000-plus, sub-£5,000 clients who are excluded from the new offer.

In practice, though, it increases complexity. There are already too many different share classes to deal with, and numbers have been spiralling since the move to unbundling.

But if that’s all it comes down to, advisers may end up relatively satisfied. They’ll hope M&G’s move is simply the first fund house jumping before it’s pushed, rather than the start of a new era of direct-to-consumer initiatives.

Dan Jones is editor of Investment Adviser