Fidelity FundsNetwork is in direct competition with international life offices following the launch of its offshore bond. Keren Holland talks to executive director David Dalton-Brown
David-Dalton Brown may have a long career history in some of the biggest life and pension companies in the UK, but that does not mean he is keen to follow their path. As executive director at Fidelity FundsNetwork, he has increasingly led the platform into the domain of life companies, most recently with the launch of an offshore bond. However, ask him about the similarities, and he is quick to insist their offerings are worlds apart.
While FundsNetwork is increasing its team, including the appointment of Paul Kennedy from Prudential as head of trusts and taxation, Dalton-Brown points out its sales force will never be near the size of a life and pensions company. He says: "This is an e-business; high-volume, low margin. I have 34 people in my team, most life and pension companies have more than 34 people in their compliance department.
"Coming from a life office background, this is the big shock to me. If you think we will do $9bn in new sales this year, I have nine salesmen. Each salesman is responsible for $1bn in sales. Obviously that reduces our distribution costs quite significantly."
Dalton-Brown joined Fidelity in March 2005 from Prudential with the mandate of further developing the FundsNetwork proposition in to the pre- and post-retirement marketplace. Since then an onshore and offshore bond, self-invested personal pension (Sipp), multi-asset trusts and adviser services have been added to the platform. Dalton-Brown says: "The growth of the platform really speaks for the way it has been received. Over the last two years we have had compound annual growth rates in excess of 40% on net sales and this year our growth is continuing. We have obtained a very significant share of collective business in the UK. We have also seen growth in our extended offering in the life and pension market. Our latest market share figures show FundsNetwork has taken nearly 8.4% of the UK Sipp market in the first quarter of this year. When you think we only launched five quarters ago, that really shows how well the proposition has been received."
Dalton-Brown says FundsNetwork sets itself apart from the offerings of traditional life and pension companies through its philosophy that the primary focus should be in creating an investment portfolio to meet the clients' needs. He says: "A traditional life and pension company starts with a product, and then the investments are usually an afterthought. Our approach to meeting the end customer need is fundamentally different and we think that's the best approach. It is what is underpinning the growth we are seeing in that platform today."
Dalton-Brown's view on bond wrappers is that they will eventually be free. He says: "These wrappers are either commoditised now, or are rapidly becoming commoditised. Therefore there is no point in selling products anymore because they are just a set of commoditised tax rules, what you are really selling is a service and investment proposition to the advisers. Our approach to wrappers being separate to the investment proposition and really just a commodity is what underpins our strategy."
However, there is a charge attached to FundsNetwork's International Bond of 0.2% for each 1%, taken over six years. Dalton-Brown says this is to cover administration and argues that the charge is much simpler than others on the market. He says the problem with traditional players is they often offer a restricted investment range, and the charges are extremely complex. He says: "We would like to offer that wrapper for free, that's where the Isa market has got to. I can see a time when the wrappers will become free. Over the last six months as we have been preparing to enter this market, I have found it incredibly different to accurately compare prices on contracts because they are so complex, there are so many charges broken up into different places and I wonder if advisers spent all their time comparing charges on the wrapper and not worrying about the underlying investment. We say the most important thing is the underlying investment, the wrapper should be very simply priced and have a very simple contract. On the wrapper we have got a single charge, and that's it. There are no switching charges, there are no exit charges, there is a one single charge. I wish I could say it is the lowest cost wrapper in the market but I can't, because I can't work out what the others actually do cost."
Despite the arguments as to who has the best offering, Dalton-Brown believes there will be plenty of opportunities in the offshore market going forward. Initially, FundsNetwork is targeting advisers selling offshore products to UK residents but it is also keen to capture the business of British citizens not resident in the UK and FundsNetwork is being registered in other offshore jurisdictions such as Jersey, Guernsey and the Isle of Man to allow that to happen. Dalton-Brown says a lot of time was spent researching the market before it entered. He adds: "If you look at the UK market, of the 5,000 IFA firms out there today, the top 300 write 72% of all of the business in the UK life and pensions market - 90% of FundsNetwork's business comes from those top 300 firms. The users within those top 300 firms are primarily investment specialists and those advisers are really seeing the benefits of offshore, so if they are not doing offshore already, which a lot of them are, they will be doing offshore business in the future. Once they have got a platform that supports an investment-led approach, and supports all the other wrappers they advise on, it will actually support their move into the offshore market, so we will probably grow the offshore market by what we are doing."
Dalton-Brown plans to continue to increase FundsNetwork's presence in the offshore arena. It is currently in the process of developing a cash account, which will eventually be available as an offshore product. It is also adding protection products, to support onshore and offshore planning around trusts.
In imagining the future, Dalton-Brown looks to the US, where Fidelity is already a firmly established platform provider. He says many of the changes starting to be seen in the UK have already happened in the US. "A lot of people use Australia to look at the changes that platforms have caused but actually the biggest change is in the US," he says. "If you look at the sector, two major platforms take 90% of all flows on to platforms - Charles Schwab and FundsNetwork - and Fidelity takes the majority of that." n
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