D2C platforms need to solve a new problem

Fawcett-Jeremy-Platforum-2013-700.jpg

Investment solutions are gaining prominence on direct platforms. The ‘investment in a tin’ approach is clearly in vogue for several of the direct-to-consumer offerings that are embracing the fact that not all DIY investors want to make their own individual fund choices.

The likes of fund of funds and multi-manager are appearing more frequently on D2C services as the focus shifts to addressing less experienced – or less interested individual investors – who need help over and above a mainstream choice of products.

Some firms have gone further and launched solutions-focused standalone firms.

We examine this in our new report on the UK D2C market, “Steady As She Goes”.

Firstly, some distributers are building their own products rather than using off-the-shelf retail funds. The likes of Hargreaves Lansdown is pushing further into the realm of operating as a fund manager itself by creating its own products and solutions.  It has increasingly been marketing its own multi-manager funds, giving even more control over flows. These funds now account for 4.8 per cent of Vantage assets under administration as at the end of 2014, up from 3.5 per cent in 2013.

Hargreaves Lansdown has expanded its range already this year, so there is now a choice of six: Income and Growth, Special Situations, Balanced Managed, Equity and Bond, Strategic Bond, the newest launch, UK Growth, and a European fund launching at the end of February.

Meanwhile, Aegon’s D2C Retiready proposition is geared directly to providing retirement planning solutions. Across its Isa and pension it has four solutions available: in the Isa they are BlackRock volatility funds, in the pension the same BlackRock funds are managed via Aegon insured funds.

Bestinvest build ready-made portfolios and offer five fund-of-fund, multi asset portfolios. Guidance tools around risk, volatility and yield help users to decide on their strategy. Alternatively, there is a managed portfolio service available for clients with over £50,000 to invest. The Bestinvest internal research team of 12 also rate funds, investment trusts and exchange traded funds.

TP Investor, the D2C proposition from True Potential, offers multi-asset funds from seven fund groups – Allianz Global Investors, Close Brothers Asset Managers, Goldman Sachs, Schroders, SEI and Seven Investment Management. Some are on an exclusive basis.

Interestingly, Axa Self Investor becomes the first life company D2C proposition to appear in the Platform on a Page section of our report, which drills down into the nitty gritty of operations, offerings and charges. The link with the Elevate platform and Architas to supply multi-manager solutions are clear strengths. Further, Architas’ Birthstar range of target date funds were launched in January this year.

In the light of this clear shift to offering off-the-shelf packages of funds designed to provide a diversified portfolio or fund-of-funds range, we are expecting more to come in 2015 from life companies, pension providers and fund managers – all putting solutions at their core.

The industry knows that many of those impacted by the new pensions rules – allowing full access to their retirement funds for the first time – may not be able to afford, or choose not to access, advice. In the meantime, the FCA’s finalised guidance has failed to give much encouragement to platforms to provide more non-advised guidance support on their websites.

Solutions developed to provide retirement income will include variable annuities, target date funds and multi-manager drawdown.

It has already started, of course. In the past year multi-asset income funds have been dominating the fund launch landscape as asset managers bet they will be the products investors look for in the new era of pension freedoms. Only this week BlackRock launched a new range or three target date funds catering to each of the options investors will have at retirement.

To meet the needs of investors, all will need to offer straightforward, easy-to-understand options to help them achieve the retirement they desire.

There are already a handful of brands that are purely solution focused. Online manager Nutmeg offers non-advised discretionary solutions, Retiready from Aegon (as previously mentioned), M&S Bank, which has a range of risk-rated funds by HSBC for savers, and Nationwide, which offers a range of Legal & General funds of funds.

Only a few of the 12 platforms that we feature in most depth in our report actually highlighted their investment solutions, even though most provide access to model portfolios and selected fund lists. These are likely to become much more prominent this year.

Key takeaway

D2C platforms are increasingly offering off-the-shelf investment solutions for investors who do not want to choose their own funds. This trend is set to evolve this year to take into account the new pension freedoms, with solutions focused on providing retirement income.

Jeremy Fawcett is head of direct at The Platforum