Abraham Okusanya, principal at paraplanning firm FinalytiQ, argues that direct to consumer launches are not just boring but commercially unviable. Here's why...
News of yet another adviser firm launching or planning its own execution-only platform have become a daily feature in industry press. I don't expect consumers to be paying any attention to these news items and they have become painfully boring (or is that just me?)
I get it - RDR and the demise of commission means that some people will be unable/unwilling to pay for advice and advisers are plotting to have a piece of the five million or so ‘orphaned clients' cake. But given the plethora of options already available to prospective investors in this space, most of them far more established and possibly more cost effective than anything advisory firms could offer, why would consumers ever use these services?
Granted, there may be a case for execution-only platforms where firms are looking to service existing clients that can't afford advice - and possibly for firms who might want to provide advice to clients for a fee and then send the clients onto their own platform to implement. But, otherwise, I am really struggling to see how jumping on the D2C bandwagon is commercially viable for advisers, especially given the lack of differentiation in many of the launches we have seen so far.
The point is, you can't compete on price in this space (CavendishOnline, ClubFinance and others do it cheaper). Nor can you compete on the basis that you provide ‘in-depth research' (HL, BestInvest and others probably do better). At least investors think they do.) And no, a transparent charging structure probably won't cut it either (ATS, rPlan and others already are doing that pretty well.) So where is the differentiation?
D2C is really a margin business; firms will be lucky if they end up with 15-25 basis point after the platform engine provider has taken its own cut. So to be viable, you need a hell lot of dough, which means clients in their thousands rather than hundreds, especially if the targets are ‘low value' orphaned clients.
However, it is possible that unique innovation could work in this space. This might include wowing prospective investor with a super UX, offering intuitive goal planning and asset allocation tools or services that let clients aggregate their bank accounts/credit cards along with their investments. Alternatively they might provide some form of gamification and the novelty will attract consumers over more established players.
But as for offering straightforward execution-only platforms, the market isn't there. The message is please innovate or you might as well not bother.
This article originally appeared on The Adviser Lounge.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress