The lazy consultant’s view of every industry’s future is one of consolidation into three or four players; consolidation of funds and platforms is oft repeated “news”.
However, there is evidence that this is not necessarily the post-RDR future and for that we should be grateful.
In the UK, platforms have evolved from fund consolidation engines to the ‘one stop shop’ for advisors and/or investors.
The majority of the non-regulatory development has been aimed at satisfying the demands of IFAs for tools to help them to support their customers.
This means that maybe only 25 per cent of the platform charge an investor pays is actually funding the asset and wrapper servicing that investor needs; the remainder is really paying for saving the IFA’s time in managing them.
If one breaks down those ‘one stop shops’, there are a number of different services all of which can benefit from being provided by specialists and many of which benefit from scale.
Fund or share dealing and servicing are scale businesses and consolidation to a handful probably makes some sense; recording everything that an advisor or execution-only venue wishes to record benefits from outsourcing to one of the client management/‘point of sale’ providers, but is as personal as the customer journey and even the type of tools required.
In the 90s and noughties outside of financial services, big firms bought big one stop shop systems like SAP or Oracle. Technology has moved on and firms now unbundle their software into specialist components combined to meet the business need. This has the added benefit that they can swap components in or out as business needs or solutions change.
To date, the retail investment equivalent has been to move from a single, one stop shop fund manager to many, through the use of one stop shop platform technology.
I predict that, rather than consolidating platforms, the unbundled future will be a number of platform components combined in different combinations for different firms.
And the funds? With the huge number of funds in UK and Europe, basic logic should be that there will be consolidation, but there are two strategies being adopted by intermediaries that mitigate against this.
The first is core and satellite, which is totally dependent upon being able to buy clean alpha satellite funds; there is a limit to the scale of many of these funds, so they are not players for consolidation.
The second is mandated funds, the popular solution for nationals and networks; by definition, these are adding to the fund population. Maybe this will lead to the death of a lot of ‘me too’ pseudo trackers, but only time will tell.
Stephen Mohan is head of UK and Ireland at Allfunds Bank