From platform consolidation to the rise of direct-to-consumer (D2C) propositions, the Retail Distribution Review (RDR) has had - and will continue to have - a profound impact on the advisory market, according to lead RDR partner at Deloitte, Andrew Power.
Power has outlined four themes he believes have been directly impact by the Review.
1 Platform partners
The platform market will consolidate to fewer than ten players, according to Power.
He said an increase in competition and falling charges would lead to consolidation in the investment platform market. Assets held on platforms will grow from £200bn today to £600bn by 2018, he estimated. However, margins will be squeezed and the break even point will rise from £20bn assets under management to about £40bn, he said.
Four ways RDR has affected the advice market
As a result, Power predicted, "the intermediary platform market will consolidate to fewer than ten large providers".
2 To me, to you
According to Power, direct-to-consumer (D2C) advice is becoming more and more significant.
The non-advised market will grow with the proliferation of the online space and cleaner share classes, Power said. Currently at about 20% of the wealth market, the non-advised space will be increasingly used to manage finances and legacy portfolios.
"Fund managers, advisers and insurers have two to three years to successfully establish direct-to-consumer business models," he warned.
3 New models
The evolution of business models was tipped to be the big change to emerge from RDR, and this has proved to be the case, said Power.
As suggested in the Association of Professional Financial Advisers' (APFA) latest poll of advisers, which showed that some advisers have been turning away lower net worth clients, Power said the economics of delivering financial advice have changed.
Advisers will need to continue to "focus on clients outside the mass market if they were to have a sustainable business, or develop guided-advice models", he said.
APFA argued that increased regulatory costs were making advice "less viable for some".
4 Low cost at all costs
Passive funds and risk-rated portfolios will continue to grow in popularity, said Power.
Power said low-cost passive funds and risk-rated portfolios are likely to continue gaining in popularity as "advisers optimise charges to clients and focus on financial planning rather than picking investments".
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