Demand for technology-driven solutions will see a defined move to efficient client-centric wrap platforms from product-centric fund supermarkets, writes Novia's Bill Vasilieff.
Whichever way you look at platforms and the development of the market in the UK, you have to conclude that probably we are only at the start of the real adoption of this technology.
As a nation we compare well with our European cousins when it comes to the take-up and use of new technology. Seven out of 10 households now have web access compared with an average of six in the EU, and 42 million of us are internet users. Online shopping now accounts for about £50bn+ retail sales in the UK and is still growing rapidly, and particularly for music, as anyone with i-pod bearing children will know.
Cap Gemini believes that between 30% and 50% of all retail sales will be online in the next five years and suggests that retailers experience "a tipping point that forces them to seriously rethink the future viability of their business model". Some retailers certainly have been 'tipped' and maybe a serious rethink is due for wealth administration as we truly begin to harness the power of web-based technologies?
We've come some distance with the development of platforms over the past 10 years or so and we are a far cry from the days of non-web and paper-based solutions. You could argue the start of multi-asset offerings was back as far as the 1970s when Skandia set up some external fund links . But the development of modern day platforms really started in the UK from 1999, influenced by the US and Australia.
Egg, and soon after, Fidelity in the adviser space, offered the UK market the opportunity to have a choice of funds from multiple provider, thus creating the first fund supermarkets. Transact, on the other hand, relied on its Australian heritage using an approach that had been developed some years earlier for the Australian master trust/wrap market. The technology here had been developed to provide efficiency for the financial planners and advisers and, in aggregating individual investor funds, to negotiate better deals from the investment houses that dominated the market.
Ten years on and where are we now? Supermarkets have done reasonably well to date, principally focusing on the mass affluent segments with primarily a product-centric approach (for example, with the use of ISA or PEP).
Pricing is proclaimed to be 'free' to users, but, effectively, the supermarket is funded by rebates from the fund managers, both at the front end and through trail rebates. Wrapper range is limited, but they are good at providing administrative efficiency for advisers.
Wraps, on the other hand, are arguably only truly beginning to emerge as the 'client-centric solution' for investment needs. Transact is the clear leader, with about 10 years in the market and more than £5bn of assets, and with other new players including Novia looking to deliver multiple product wrappers, breadth of investment choice to match investor requirements and real transparency of pricing.
What is interesting to note in the last decade, is the number of players who have seen the potential in the market but lacked the real insight and knowledge - or perhaps persistency - to deliver. The big names include AMEX, Friends Provident, Prudential, Norwich Union and very recently UBS.
But looking at all the retail funds under management on platforms at about £100bn or so it is a long way from the market potential of trillions of pounds. In other words it is still early days. Of course, not all will flow into platforms: some will continue to reside in dormant life company pension schemes and lament in largely opaque with-profit type products.
And despite some inertia, I believe we will see the acceleration of funds onto wrap platforms. The supermarkets will continue to serve the needs of some clients and their advisers who want to offer 'product-centric' choice and are happy to restrict their investment choice only to traditional funds.
However, the real growth in volume will be in the full wrap space using modern technology and web-based protocols to deliver a much broader investment choice including shares, ETFs, structured products and alternative investments. For the wealthier investor, fund supermarkets are already becoming obsolete.
Market forces will help as well. The RDR, although having a prolonged gestation, will together with TCF help to unbundle the value of advice from product charges and achieve pricing transparency.
Our ageing demographics will help also as the proportion of the population who are approaching pension age grows. Individuals in this bracket will be taking a good look at what options they have regarding their pension and the growth of SIPPs will continue, but within modern wrap platforms to manage them.
Not every client will want a running commentary on their portfolio. However, the ease of being able to get daily valuations, performance tracking and other information on their own screens showing sensible information on how their investments are performing across multiple wrappers is on offer to those clients that want it through modern, technology-efficient wraps.
It will be those wrap providers that do not lose sight of the fact that advisers and clients want to forge close professional relationships as markets and technology no doubt change again over the next 10 years that will succeed. Novia intends to be part of that relationship, delivering fast, efficient investment analysis, effective administration and up-to-date information for the adviser and client. We've a way to go, but the evolution for platforms into full wrap is now definitely under way.
Bill Vasilieff is CEO of Novia Financial
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