Deloitte gives advisers three years to develop D2C service

Advisers, fund managers and insurers have a window of two to three years to establish direct to consumer business models as the market segments in the wake of the Retail Distribution Review, Deloitte has predicted.

In a review of the RDR as the market approaches its first anniversary, Andrew Power, lead RDR partner at Deloitte, said the non-advised market represents about 20 per cent of the wealth market and will grow as “consumers who manage their finances online continue migrating to clean share classes”.

Speaking to FTAdviser, Mr Power predicted £125bn will move from being advised to being direct, and in the resulting “land grab” there is only room for three or four major direct-only players such as Hargreaves Lansdown.

Article continues after advert

However, he added that smaller advisers who offer direct-to-consumer options as a secondary service do not face the same time pressures.

Mr Power said: “People need to establish if they are going to have a direct-to-consumer brand in the next two to three years or it will be gone.

“The worst thing obviously is to be stuck in the middle and invest somewhat and not be one of those three or four and not be an adviser offering direct on the side.”

He warned that IFA networks, insurers and banks might be particularly prone approach direct in a “half-hearted” and ultimately futile fashion.

He added: “The economics of delivering financial advice means that advisers will need to focus on clients outside the mass market if they are to have a sustainable business, or develop guided-advice models.

“Low-cost passive funds and risk-rated portfolios are likely to continue gaining market share as advisers optimise charges to clients and focus on financial planning rather than picking investments.”

Mr Power also predicted that although assets held on platforms will treble from £200bn to £600bn by 2018, squeezed margins will force the breakeven point to rise from £20bn to £40bn, which in turn will result in market consolidation until fewer than 10 large platform providers remain.