Perhaps unexpectedly, the restricted proposition looks rosier. Conversations started with volume and moved on to agreements around management information and corporate actions. As one fund manager said to us: “We are no longer talking extra clean at 65bps, we are looking at mandates at 45bps.”
The world of vertical integration looks very pretty now if you are in the right place, that is, a platform with associated funds and the ability to influence distribution. Providers will be looking to tie up more distribution to provide continued fund flows, whether direct to customer or intermediated. Standard Life offers huge flows to SLI funds; AXA Elevate offers great terms on Architas funds. Old Mutual, on the other hand, having seeded its OMGI funds with life company assets, is now buying distribution, namely Intrinsic, Positive Solutions and, most recently, Quilters. How long before they acquire direct distribution?
Distributors such as SBG and Succession have done deals with asset managers and platforms to manage costs and compliance, and to maintain or increase margins.
In the pre-RDR world, the majority of IFA firms were tiny and/or networked. Today, Honister is history, Positive Solutions is part of OMG, SBG is about to become restricted only and the rest of the big boys have restricted propositions. There remains a rump of one- or two-person IFA firms, but most compliance experts doubt their ability to survive as independent, with a few exceptions. In addition, there are more substantial local and regional general IFA firms, wealth managers and financial planners.
It is likely that in five to 10 years, IFAs will be relatively few, as most will have become restricted or merged or acquired. The survivors will be specialists and highly successful, offering financial planning and wealth management to the wealthy and high earners.
This brings us back to the future of platforms. We can make a few assumptions:
• Legislation or regulation will enable cheap, quick re-registration. This will encourage merger and acquisition activity.
• Platforms will be distributors, have distribution clout or will be favoured by a small IFA community.
• The cost of IT falls (Moore’s Law). Successful platforms will focus on requisite features, not all-and-sundry bells and whistles, enabling lower costs (which the market will demand).
Then there are the known unknowns:
• A move from ad valorem pricing to fixed pricing (as with Alliance Trust) would destabilise most pricing models.
• Aggregation away from platforms alters what is required from platforms (look at Sammedia and Sprint Technologies). Much of the current platform functionality is around aggregation, analysis and reporting.
• Compulsory and increased auto-enrolment contributions, plus collective defined contribution pension schemes, could redirect focus to cheap centralised investment and slow the flow to the individual retail sector.
