The robo-advisor debate rumbles on with Brewin Dolphin the latest to soft-launch such a service at a much lower price to its traditional discretionary service. However, is there is a low cost alternative involving active funds through the use of D2C select lists?
For DIY propositions to appeal beyond the most confident investment pickers, they need to provide guidance and perhaps the most tried and tested tools are the favoured funds lists that narrow choice. But do those lists pose a threat to traditional investment managers operating on an advised or discretionary basis?
The D2C lists vary in length, concentration and how they are formed. There are 12 today of which some are produced by a dedicated team at the platform.
Perhaps the most well-known is Hargreaves Lansdown’s Wealth 150, which was launched over a decade ago and was joined recently by the more compact Wealth 150+, which picks out the lower-cost funds from the larger list. According to the company, the Wealth 150+ accounted for more than 30 per cent of fund sales on the platform in March 2014. A number of other D2C players also have well established select lists and two have launched them this year.
Others offer D2C alongside advised or discretionary services and have central research teams that produce lists to cater to each. Bestinvest does this with Simon Moore’s research team producing the Premier Selection – the longest D2C select list with 131 funds. Charles Stanley’s central research team has recently taken over Charles Stanley Direct’s Foundation Fund List and Barclays Stockbrokers launched a new D2C select list this year, produced by the fund product team within Barclays Wealth, which creates the fund list for Barclays Private Bank.
Others outsource, which is the case for Willis Owen, which produces the most compact list of 15 funds in conjunction with Square Mile, and for TD Direct Investing which uses Morningstar. Trustnet Direct is the direct platform owned by FE and its select list is based on the FE Select 100, offering a hybrid of outsourcing to an internal team.
TD Direct Investing’s select list is the newest and that team felt it needed to get simplified advice permissions in place before offering what it bills as TD Recommended Funds. It also publishes the TD Recommended ETFs, which reflects how platforms are increasingly looking to include passives either on their main list or on a sub-list.
But do these lists all track the same funds?
Overall, we’ve seen an expansion in the funds covered by the D2C select lists with the number of funds included on at least one increasing to 404 this year and 367 last year, stripping out new lists covered. Funds from M&G, Fidelity, Jupiter, Schroders and Invesco appear most frequently and, collectively, the lists over-represent certain categories including UK Equity Income, Strategic Bond and Japan.
However, there is overlap, and First State Asia Pacific Leaders gets the impressive endorsement of appearing on 11 out 12 of the lists.
We find that while the characteristics of the D2C select lists varied, they all employed credible methodologies and had some reassuring consistencies.
However, with most lists including more than 70 funds, the self-directed investor still has a tricky portfolio building job, that many won’t feel up to. This is addressed by platforms that offer ready-made portfolios and multi-manager funds, often based on their select lists.
Many will feel that a list cannot replace professional experts any more than robots can. The more enlightened self-directed investor will be aware that asset allocation, tax and correlation are important considerations that select lists don’t help with.
Rightly or wrongly we expect more people to make their own investment decisions in the future and select lists will become more central to self-directed propositions. While investment managers will recognise the limitations of those lists, it’s hard to write off something that they invented.
Jeremy Fawcett is head of direct at Platforum.
D2C select lists:
Number of D2C select lists: 12
Funds included on lists: 452
Funds included on 4+ lists: 67
Most included fund: First State Asia Pacific Leaders (11 lists)
Most included fund group: M&G (57 inclusions)
Highest number of funds on lists: Fidelity (30 funds)
Most popular IA sector: UK All Companies
Largest list: Bestinvest (131 vehicles)
Smallest list: Willis Owen (15 funds)
Most discounted funds: Hargreaves Lansdown (58 funds)
5/12 lists: Passives included on main or sub-list