Small adviser businesses under more pressure than rivals

John Lappin

Perhaps commission covered a multitude of sins – one of those being a slow but steady increase in the price of fund management.

The initial regulatory heat was on bonds and group personal pensions and the fact the money moved around after the clawback period. But the RDR has progressively reached into all parts of the market, questioning the role of upfront mutual fund commission and then, perhaps more surprisingly, trail.

Everyone’s business model, whether life office, wrap, fund manager, adviser, B to B, B to C, or even B to B to C, has been shaken up while commission is stripped out of just about every relationship and transaction in the market.

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Increasingly, we can see the price of asset management, but should investment advisers like what they see?

It is clear advisers, having experienced extraordinary turmoil, might expect to see significant dividends. Investment advisers should be seeing more solid client relationships but they also want to see unbundling delivering better value when they access fund management.

The signs are that the RDR is not doing this. Unbundled prices for fund management are coming in higher than bundled prices on some wraps and platforms. That seems to be the case with Standard Life, for example, though advisers have been raising such concerns for some time now.

Now, from an adviser’s point of view, this must be a source of some consternation. The ‘value chain’, as we must call it, has gotten shorter and in some ways that is a good thing, because it relates, at least loosely, to what it is fair to expect a client to pay.

Yet it also means that how margins are divided is always going to be subject to some difficult conversations and negotiations between platform, fund manager and adviser.

Fund managers may be taking a bigger share of a smaller cake. Some of this may be the result of simple negotiation tactics, with managers understandably defending their margins in an uncertain world. Indeed, active managers reward companies with pricing power by investing in them, so what is wrong with them establishing their own pricing power?

Advisers, of course, have the choice to seek investment options elsewhere, and some in the passive camp will be more than content about this situation as the ink dries on a few more True and Fair campaign press releases.

Yet in the midst of all this kerfuffle, one big concern for many investment advisers must be that, as smaller distributors, they could suffer from higher pricing than their bigger rivals.

On one level this is simply competition. But with so much regulation falling on advisers, they could be forgiven for voting with their feet and recommending other solutions or even wondering and hoping that the threatened regulatory intervention on the price of active fund management comes to pass.