NEW YEAR, NEW DISCLOSURE
Like a bad follow up album that no-one really wants, MIFID is back. 12 months ago we had the first wave of action, with transaction fees being exposed for all to see. Whereas these figures were expected costs, investors are about to start receiving statements showing the actual costs paid over the last 12 months, broken down in Imperial Credits of the Realm (£’s & pence), covering advice, platform, asset management, DFM and anyone else who is taking a slice of your investment returns.
We think this is potentially a big thing. For a long time, so called experts have speculated what might happen when investors are told the total cost of ownership. Whatever the answer to this is, we are about to find out. Some investors will be fine with it all. Their advisers have always been clear about costs, and these new statements won’t tell them anything they haven’t seen before. More importantly, these investors value the services they receive from their advisers.
However, if this isn’t the case, then it might be a wake-up call. If investors read these statements and don’t have a decent relationship with their adviser, then they might be prompted to take action. Especially since these statements are being sent out against the backdrop of some pretty choppy markets over the last 12 months.
As a result, we wanted to find out how this is all going to work, and especially what it all means for advisers and paraplanners. 15 platforms have very helpfully responded to our information request, and we are very grateful for the time they took to do so. If your favourite platform isn’t on the list, please ask them nicely if they could supply the information we need, and we’ll update the list accordingly. The research is available in a free handy document, which you can download by clicking the image below (takes you to our publications library where you can add the document to your shopping cart.
So what does it all mean? Here are our top 3 conclusions….
I have some sympathy for the platforms. This is a must do project, with a defined scope and timescale. Having run several of these projects myself I know just how complex they are, and how soul destroying it is to devote loads of time/energy/resource for “just” disclosure. Hate the system, not the player – this isn’t the platforms’ fault
However, for advisers who have client assets with a number of platforms (as the regulator likes you to do), it’s not going to be a great experience. Surprise surprise, everyone is doing things slightly differently, and your clients are going to get statements on different days, with different calculations and products
And as an adviser, for the majority of platforms you will have no involvement in the process. 100% of providers are sending these statements directly to clients themselves, and only a handful of platforms are giving advisers the ability to interrogate the data and/or run their own reports. Some of you will see this as a positive; others won’t. It will be interesting to hear how you feel about it all – let us know in the comments below
Our main conclusion is that advisers and paraplanners need to engage with this detail now. Whatever platform(s) you are using, your clients are about to get these statements landing on their doorstep. We hope this research helps you to plan accordingly.
FIXED THAT FOR YOU: STATE OF THE PLATFORM NATION
We think that 2018 was the biggest year in platforms since RDR. It’s in that spirit, then, that we offer you FIXED THAT FOR YOU: STATE OF THE PLATFORM NATION – the lang cat’s 2018/19 guide to the advised platform market. [maxbutton id=”9″]
It’s time to make your voice heard
It’s nice to be listened to isn’t it? It’s even better when what you’re saying is being both listened to and shock horror… acted upon. Well, here’s a revelation for you; we love hearing what you’ve got to say about life in the financial services world. Whether it’s more Dismaland than Disneyland or you want […]
Robo Wars
It’s a tough job putting our annual guides together. For both our recently published Guide to Direct Platform Investing and our imminent(ish) guide to advised platforms, a lot of work goes into research, preparation and writing (no, really…). We then go through the editing/proofing/setting process, and eventually, if we don’t kill each other, the final version is released to the world. Without fail there will at that point be some sort of market event, product launch, repricing or some other change that is too late to include. And with our latest direct investing guide we have actually been treated to two.
Firstly, within a matter of hours of the files being sent to the printer, UBS closed its SmartWealth service to new business, proving yet again that nominative determinism doesn’t work in financial services. And that was quickly followed up by the news that a collection of robos (1) are planning on lobbying HM Treasury, the FCA and anyone else who might listen to relax the suitability rules for digital investing.
These two stories are not unconnected. UBS, like many others, found the direct investing market formidably difficult to break into. The market is utterly dominated by Hargreaves Lansdown, it has a market share of around 40% and is currently picking up new clients at a run rate of around 11,000 a month. There’s also a 95% client retention rate – they just don’t leave, no matter how shiny/cheap/cool the alternative is.
The UBS service was hilariously overpriced and only had a handful of customers, so no one will really miss it. However, it does serve to highlight just how hard it is to launch a D2C/robo business. Even big, deep-pocketed brands such as UBS are finding it impossible to make a dent into HL’s figures, and for the smaller start-ups the numbers are increasingly alarming.
Last month one of the start-up robos posted its latest accounts to Companies House. It doesn’t matter which one it was, because it could be one of many with a similar story. This firm is posting UK revenue well below £500k, with a cost base around £15m. Over £5m was spent on marketing during the period in question, and the overall loss was around £14m. It is, of course, perfectly normal for start-up businesses to experience losses in their early years, but the level of losses that the smaller robos are posting is insane and unsustainable.
Against this backdrop of tiny inflows, it comes as no surprise to read that a collection of robos (1) are seeking to get a reduction in the level of regulatory requirements for suitability. As a reminder, most of these services are Discretionary, so even if you are not offering advice (and some are) you still have a regulatory requirement to ensure suitability. This means that as well as the usual risk tolerance questions, you need to assess affordability.
If you are struggling to attract flows, the last thing you want to hear is that you have to turn away around 60% of potential customers because they fail the affordability checks, but that is exactly what is happening. And with household debt at record levels, that’s exactly what needs to happen. Anyone in this situation should be paying off their debt and saving before they even think about investing via a robo, and if anything the regulation should be more stringent in this respect.
This lobbying is a desperate commercial measure. When the only way you make money is by selling products, you clearly want to make it easy for folk to buy your stuff, but suitability must come first. These services are supposed to herald a new era for financial services, ‘democratising investing’, however by putting sales ahead of suitability it is clear where their priorities lie. It’s an old-skool product push, dressed up with a shiny app.
This collection of robos (1) would be better served by spending time and collective energy to show the benefits of investing, the value of advice and giving folk tools/services to gain control of their financial life. Debt management needs to be part of this, as is enabling a more holistic view of your finances beyond a bunch of ETFs. This isn’t beyond the wit of man, especially if the industry can create a consistent voice, however this would require a shift in mindset for most involved. If these firms are to avoid the fate of UBS they need to become genuinely customer centric, ensuring customers get the best possible outcome. Their current product-centric nature looks increasingly like their fatal weakness.
(1) insert your own collective noun joke here
IT’S COME AND HAVE A GO: THE (LATE) SUMMER SPECIAL
Ah, summer holidays, what memories. School’s out, Alice Cooper’s screaming, the sun is shining, we might be stretching the point here – and it’s time to race down to the newsagent for a bumper edition of your favourite comic. The big debate was generally whether Dennis the Menace could take Desperate Dan (the office remains divided on this point) and which of the Bash Street Kids you could identify among your classmates (we skipped this one as it was only ever going to end badly).
Now, some of us gave up comics because we outgrew them, some because we had to and some not even then. But we all retain a warm affection for summer specials (and when we see what some of them are changing hands for online, wish we’d held on to more of them). Anyway, when it came to this year’s Guide to Direct Investing we thought we’d treat our hardworking (and terrifying) Chairman to a trip to the seaside.
COME AND HAVE A GO: THE (LATE) SUMMER SPECIAL is not just a trip down memory lane, it’s a lang cat away day.
We had a lot of fun putting the Guide together but that didn’t distract us from the serious business of market updates and pricing analysis to help investors as they navigate direct platform investing.
The usual pricing updates are present and correct and we take you through who’s moving and shaking respectively. The direct market has seen a few changes in the last year and we have all the headlines. Regulation is as regulation does, rinse, repeat. But some of it is driving change for direct investors and we look at two topics in a little more depth.
First, there is greater transparency around the transaction costs that you have probably always paid but didn’t know about specifically. This is a good thing, but transparency does not equal clarity. Having all the pieces of a jigsaw is no use if you don’t have a picture of what the finished article should look like.
Our second topic is the rise in apps that let you see your whole financial picture (savings, loans, investments etc.) in the one place and manage them. It’s about visibility and control rather than somewhere to physically put your money. Again, this has potential but there are issues to resolve first.
We feel we should make holidaying investors aware that there is no free game, catapult or lollipop included with the Guide. It is, however, packed with heatmaps, vaguely disturbing cat pictures and a squirrel joke which explains why the Financial Services Compensation Scheme will no longer take our calls.
It’s all there for the downloading. Or, if we’re being strictly accurate, it’s all here. Go on, you deserve a bit of late summer sun and fun.
CONSUMERS HAVE THEIR SAY ABOUT PLATFORMS
Weighing in at 91 pages and backed by a study of more than 3,000 platform users, the consumer research element of the FCA’s Investment Platforms Market Study (IPMS[1]) is a heavyweight. And while it doesn’t land many blows or produce anything particularly revelatory, NMG’s research provides a substantial body of qualitative and quantitative evidence around […]
IT’S GROUNDHOG DAY. AGAIN
Can you remember what you were doing on 17 July 2017? If you work in platform land[1] chances are you were thumbing through the FCA’s Investment Platforms Market Study Terms of Reference paper, or more likely, reading our blog on said paper. Fast forward 12 months, and here we are again. This time, it’s the […]
Assess THIS: our thoughts on the FCA’s Asset Management Market Study paper PS18/08
Today is a significant day for asset management in the UK. The Asset Management Market Study has taken a big step towards its conclusion with the publication of the first set of final rules, addressing most of the main issues highlighted in the first report. The process started in Nov 2015 with the publication of […]
HMRC kill superclean funds?
Today’s announcement that, in the view of Judge Thomas Scott, HMRC have been incorrectly treating fund rebates as taxable could well be one of the most significant changes to platform and asset management land this year. You can read full details of the judgement here. If you are a fan of platforms you’ll understand and […]
STAT ATTACK! The lang cat’s Q4 2017 advised platform market scorecard is out now.
Terry Huddart summarises the lang cat’s findings from the new edition of its advised Platform Market Scorecard A massive period of disruption is underway in the UK advised platform sector, affecting, by our estimate, £464bn (89%) of AUA. By disruption we mean a major business change event such as a technology upgrade/move, floatation or sale […]
