So in an effort to try to be a little less predictable, I’ll spend much of this column musing on a couple of things that have got me stroking my chin(s) as 2017 fades in the rear-view mirror.
First, we need to talk about Mifid II. As I write, there are about 31 days left until its live date, and I don’t think I’m stretching the truth when I say I haven’t seen a single business – platform or adviser – that is properly ready.
Whether it’s the 10 per cent drop rule, data on target client suitability, quarterly statements, ex-post disclosure of costs, conflict of interest management or pre-switch cost illustration, Mifid II reaches right into the heart of advisory and planning businesses in particular, and attacks the back-room processes we have all grown used to over the years.
Not only that, what it delivers is something that adds precisely no value to firms. Arguably, it’ll subtract value as the industry tries to pick its way through the minefield and second-guess exactly what transgressions will end in a slap from the regulator, and which will be nodded at – for a while at least.
Decent exposure
The most profound aspect of Mifid II is the one that’s furthest away – annual disclosure of the total amount of charges an individual is exposed to. That is what’s called ex-post disclosure (the industry uses Latin to try and exclude normal people in the name of inclusion again), and it could be absolutely critical in arming clients to get much more interested in what they’re paying for and what they get.
Even when people can do percentages in their heads, they don’t, and attributing ‘value’ to, say, a 0.75 per cent adviser charge on an amount of money you won’t access for a decade or two is pretty hard conceptually.
But if you know that your £200,000 self-invested personal pension cost you £1,500 for adviser service, £700 for the platform and £2,200 for the investment fund, so a shade over £4,000 for the lot, then you might start asking yourself some questions. Specifically, whether each bit of the chain was worth it, and what ‘worth it’ means.
To date we’ve had disclosure, but it has always been separated out in one way or another. This is a whole new ball game. I’m not saying it will cause clients to switch off – but it will make it easy for people to compare, easy for journalists to write about, and easy for troublemakers like my business to analyse.
That in turn leads to understanding, which leads to empowerment for clients – and that empowerment often comes with a new-found interest in negotiation.
I think we’ll see some pre-emptive moves from the more fully priced end of the market to bring things under control a bit. Multi-asset providers and advisers charging 1 per cent or more will probably be the first to feel it.
Pondering planning
Talking of feeling it, I have spoken at a couple of financial planning conferences in the past few days. At both, there was no shortage of people exhorting the planners to locate all their value in the planning journey itself.
Someone probably talked about quarter-inch drill bits and holes and stuff, or if they didn’t it seemed like they did.
That’s all fine, but it strikes me that over the past few years, as financial planning has come into the ascendancy post-RDR, the total cost of ownership (TCO) for clients has gone up quite considerably. There’s no magic money tree, so this comes from firms putting their charges up.
In some cases, it’s advisers who have done this. But I think the harder truth is that the cost of the supply chain that firms use has also crept up. My contention is that this is what happens when those who have what in the US they call “fiduciary responsibility” for the client take their eye off the ball and only think about planning, meaning that all sorts of nasties start to creep in.
It isn’t the adviser that does this, it’s the more nefarious / clever / commercial elements of the industry, and they do it because they know no one’s watching.
So I’d like 2018 to be a year when planners rebalance their focus a little bit back on to the kit they use. No one is saying that planning isn’t valuable, but I’ve seen far too many TCO chains of well over 2 per cent from firms that have arguably lost control of this end of things.
Platforms’ piece of the puzzle
I suppose 2017 was the year when the platform industry really started getting going on consolidation.
Although the deals were done in 2016, Standard Life and Elevate are now together, and while they’re separate platforms they now try to report as one. If they do that then they’re right at the top of the charts in terms of assets under administration and inflows. Parmenion is also now part of the stable following the Aberdeen merger.
More interestingly, though, Aegon is moving on apace with its build, ready for moving Cofunds clients across in May 2018. If this goes well it will be the biggest replatforming – it’s actually a migration more than a replatforming – ever done in one shot, and a real counterpoint to the problems of others, not least Old Quilter Wealth or whatever it’s going to be called.
We expect to see at least one more deal done in 2018, with lots of rumblings about others. We may well see a few changes in ownership. But that’s quite different from consolidation, of course.
So to close off, here are a few of my favourite platform moments from 2017:
• Vanguard doing the platform pricing equivalent of a ‘mic drop’ and coming to market at 0.15 per cent.
• Embark doing the same thing, although it backtracked a bit and made it a special offer.
• Old Mutual Wealth admitting it had dropped £330m or so on a platform that wasn’t going to happen – I’d have built the firm an imaginary platform for £325m, so it lost out there.
• Seeing our little Lang Cat award logo on a Share Centre advert on the Tube.
• The guy who told us during a research exercise that his ongoing TCO for his clients was 5 per cent – either he’s ripping them off or he doesn’t know what he charges…either way...
My least favourite moment was the untimely passing of all-round top guy and sometime co-presenter Mike Morrison. Mike, you’re missed and glasses will be raised this festive season.
So that’s that. I’ll see you for more platform-related weirdness as 2018 unfolds.
Mark Polson is principal of platform and specialist consultancy the Lang Cat
