Once upon a time, there were 14.1m UK customers holding risk-based investment products – we have tracked the various journeys investors go on to access the markets (see diagram below).
Nearly 4m of these investors are entirely self-directed today and only 2.4m are entirely advised. The rest dip in and out of advice – they are ‘part-timers’. A recent JP Morgan survey identified that 40 per cent of customers in future will want “task-based advice”, not necessarily willing to pay an ongoing fee for advice. As more platforms support adviser firms which want to offer an execution-only service to customers, we think this ‘multi-channel’ approach will be a big theme in 2013.
Both direct and advised investment platforms have 4.5m customers today and are taking greater market share every year. In our latest consumer research, we identify that 28 per cent of the UK’s active private investors (both advised and self-directed) plan to take out their next investment on a platform. When we started this research two years ago, we only found about four people who even knew what a platform was! So awareness of this online investment option is growing.
These ‘delivery mechanisms’ also play an increasingly important role in channelling the investor’s fund selection process, through selected lists and model portfolios. Seventy per cent of advised customers end up in a centralised investment proposition and an even larger percentage of direct platform AUA is channelled to the various Select lists. Solutions is the name of the game, with multi-asset and passive products continuing to rise. Advisers tell us they plan to put 30 per cent of their customers’ assets into passively managed products in the next six months – it’s a little over 25 per cent today. It’s also bad news for mid-sized asset managers with no clear speciality. More than 70 per cent of platform assets are expected to flow to just 10 fund management groups.
With the number of advisers anticipated to fall by up to 25 per cent over the next 18 months, and the FSA’s requirements for advisers to evidence ongoing provision of a service, the number of advised clients will plummet. Just this week, Santander announced the suspension of 800 advisers as it tries to work out what to do with the mass affluent market. That is the big issue.
We think there will be up to nearly 8m clients who have had some engagement with an IFA in the past who will move away from paying an ongoing fee to an adviser. Some will end up going to direct platforms; we think others will go to the life companies; others will be in the market for the task-based advice model identified above. Fund managers are gearing up to re-enter the direct market with simple, packaged solutions and the banks are extending their execution-only services.
As the impact of the RDR rolls out, we think that financial advisers will be a niche yet powerful group in the broader retail investment landscape, which will be dominated by direct and workplace channels. Banks and advisers will largely exit the mass market space and this is the big opportunity for 2013. There is little innovation today in this space and we see the room for a massive ‘disrupter’ to enter the market.
To return to our original 14m stickmen, fewer will engage with an adviser, more will be self-directed, the end investment product adopted will be increasingly consistent and multi-manager and passive will grow. Bespoke advice and product will become a rarity.
Holly Mackay is managing director of The Platforum
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