It is pretty well accepted that our industry is going through a period of extraordinary, perhaps unprecedented, change.
Whether driven by customer expectations, regulatory intervention or revolutionary technology, our market is bursting with challenges and opportunities. What’s most interesting is how various organisations are responding.
Some are investing to catch or even keep ahead of the curve, innovating more than at any time in the past, with a vision to play a role in delivering the great client outcomes of the future. Naturally, not every innovation will prove to be a winner, but you get nothing for not trying and it seems to me that, amid the many efforts, we’ll see some great initiatives emerge.
Other organisations are fighting market progress, rejecting forward momentum and retreating into the discredited business models of the last century.
When I was starting to map out my career, doing product development work for a couple of life companies and asset managers, it was seen as quite innovative to add the funds of third parties alongside one’s in-house asset management capability.
Propositions were judged on the number of external links and the exclusivity of particular arrangements. I recall Scottish Widows being terribly excited to welcome Russell Investments aboard, and later Selestia’s unbridled enthusiasm for SEI’s manager of managers proposition.
The market was about increasing choice and hopefully adding a bit of marketing muscle to help both parties. It was all cosy between life companies and fund managers. And so the fund supermarket model was born.
Then Transact came along and spoilt the party. By offering competitive fund pricing with absolutely no bias. Transact defied convention and moved asset choice away from product development teams and into the hands of financial advisers. A hugely positive move, albeit one that increased the burden of responsibility on advisers, but justifiably so. After all, these people had actually met and knew real-life clients.
Now parts of the market are regressing. No longer able to secure kickbacks for distributing funds, some platforms again think they can build client portfolios, in spite of having (typically) no sight of the underlying client.
The pitch seems to go: the provider is very big and clever, and able to negotiate better terms for clients who want to invest in funds they haven’t selected (using those clients’ volume), so everyone should direct their money that way. Never mind if the platform is overpriced, or if it exposes advisers to regulatory risk due to bias (see COBS 6.1F.1).
The nature of ‘super clean’ pricing seems destined to foster a new ‘my fund list is bigger than your fund list’ war. And so back to the 1990s we go.
Someone recently tweeted that people want choice, but they don’t want to choose. Platforms have given them choice and advisers can help them choose. Trying to narrow that choice, while scoffing a chunk of the fund margin to prop up collapsing platform margins, feels draconian. In many ways, it is something more befitting of a supermarket value deal than of a world-class investment operation.
When one combines these ‘offers’ with fund management by numbers, I fear this is where this is all heading.
David Ferguson is chief executive at Nucleus Financial
