The D2C market is rapidly expanding but advisers have, so far, been reluctant to dive into execution only. Henry Brennan asks why and finds out if things are changing…
Assets flowing into direct-to-consumer (D2C) platforms have surged to £116bn at the latest count and growth doesn't look set to slow.
The platforms have already attracted a great deal of attention this year in response to a number of players choosing to reveal their unbundled pricing models ahead of the April deadline.
And yet, adviser firms have seemingly been more hesitant to join this burgeoning market than might have been expected.
You would have thought the ever-growing ‘advice gap' – which sees investors with smaller total funds effectively priced out of advice – would have convinced more advisers to launch their own proposition. But it is rarely cut and dry in the advice business, even less so when a brand or clients are at stake.
There are regulatory considerations, costs and the fact that the D2C market has never been more competitive to put those mulling the idea off it completely. Larger providers can also comfortably offer cheaper pricing structures that small IFAs would struggle to match.
Joys of unbundling
But for all the bad news these potential obstacles might spell out to the smaller player, unbundling could be exactly what is needed to touch off a spate of new platform launches.
According to the results of an Adviser Home survey conducted towards the end of October, more than half of advisers were interested in setting up their own D2C propositions.
A few months on and Adviser Home director Andy Kibby told PA the release of unbundled pricing structures from existing participants could be what is needed for others to take the first step.
He said: "It is very much still on the agenda. Advisers largely seem to want to do it but are perhaps not aware of the right approach. As more offerings come out and more people become familiar with it, we will see more of these types of things.
"There is still a little bit of confusion about what you can and cannot do with regards to the regulation which might be holding people back a bit."
The most recent addition to the marketplace is the work of Exeter-based Prydis Wealth, which launched Strawberry Invest last week.
Prydis Wealth director and Strawberry Invest founder James Priday said the execution-only platform was branded separately to avoid diluting the advised business's brand.
He said: "When I was looking at what was on offer a few years ago, I found it very confusing. The people at Ascentric came to me and said they were developing this new thing for advisers to develop their own platform and take it out to their existing clients.
"Although it sounded good, I didn't want to be watering down the brand we had already built up by having an execution-only offering. We only rebranded a few years ago and we wanted something a bit more fun and light-hearted, so we decided to create Strawberry."
He added: "We have a team of fund analysts and portfolio managers in house so we all write the material. We have a top 20 list of investment funds which will expand to 40.
We are using part of the knowledge we built in-house and feeding in simpler funds, such as multi asset and multi manager, in order to help out the small scale investor."
Priday added the business model is designed to evolve with the economies of scale. The initial target is to get 10,000 registered accounts by the end of 2015 and for platform charges to come down between 30% and 40% over the next two years.
The basis of Strawberry Invest is Ascentric's Investor Direct, the pilot of which has been running since last year. Ascentric announced plans to sell off its own direct fund supermarket, Fundsdirect, in July, but it continues to develop this white-label proposition which allows distributors to set up their own non-advised business.
Ascentric head of marketing Dominic Ventham said the uptake of the pilot scheme reflects growing IFA demand for information on how to establish an execution-only proposition.
He said: "We've been running our Investor Direct pilot for several months and the take-up among distributors has been greater than expected. The key next step is converting that perceived customer need into business and we are working with our pilot firms to deliver this."
Getting in quick
Those IFAs who are looking for routes into the execution-only space seemingly have a similar target market in mind. Strawberry Invest starts pricing on the first £50,000 while Ascot Wealth Management also set the bar at £50,000 or less when it revealed it was in the process of building an execution-only offering in July.
The execution-only market is growing at an impressive rate. Figures from consultancy the Platforum indicate assets under administration have risen from £65bn to £116bn in a few short years.
However, the marketplace is getting increasingly crowded, meaning that newer entrants are going to find it increasingly hard to get established the later they leave it.
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