Asset managers risk stumbling into regulatory problems because they lack the wealth of data held by platforms, according to Nucleus’s Barry Neilson.
The platform’s business development director said fund groups are currently at a “huge structural disadvantage” because they have no idea who is buying their products.
While Mr Neilson said platforms have built up a valuable bulk of data on their customers, he argued managers will “suffer very heavily” because they don’t have access to this information.
“Historically, the industry has been good at creating a product and finding a way of selling it, but now the game in town is to find an audience, obsess over understanding their needs, and then design a product specifically for them.”
Most platforms trade on a net basis and therefore the fund groups have “no idea what is happening beneath the surface”, stated Mr Neilson, because they only see one single trade from the platform nominee each day.
“How do you design a product for your audience when you have got no idea who that audience is?”
“One option is to create a product and hope that someone buys it, which would not be a very sustainable method.”
How do you design a product for your audience when you have got no idea who that audience is? Barry NeilsonThis comes as the European Commission demanded distributors, including advisers, work with providers to ensure investment products are being sold to the right target market.
Mr Neilson’s comments follow the Financial Conduct Authority’s report in May examining how asset managers use information from their fund distributors to meet client expectations.
When FTAdviser asked a number of asset managers how they used data from distributors to influence their decisions, some questioned whether the information was helpful when making investment decisions.
Mr Neilson said the fund group’s data void creates two problems: One around product innovation, the other regulatory.
He stated: “It is difficult for fund groups to make good on their conduct requirements, because they can’t really provide evidence their products are being used in an appropriate and suitable manner.”
Regulatory pressures will mean there will be a growing need for platforms to provide more information to the fund groups, Mr Neilson said, adding the nature of the relationship between the two industries will change.
He predicted a shift in the collaboration between platforms and asset managers, whereby rather than trying to get their funds on as many platforms as possible, fund groups will work more closely with two or three platforms to create more bespoke propositions.
The Nucleus director also said larger fund groups will look to buy platforms in order to gain access to the information and distribution.
But changes in ownership, he predicted, are unlikely to be like the Standard Life and Axa Elevate merger.
He said - while the theory is good in terms of trying to benefit from cost savings and scale - merging two platforms is actually very difficult in practice.
“The points of difference are probably greater than the points of commonality,” Mr Neilson added, pointing to the different tax wrappers, charging models, asset universes and audiences.
katherine.denham@ft.com
