RESHAPING RETAIL FUND DISTRIBUTION

DISTRIBUTORS TO PROPOSE NEW CLIENT ENGAGEMENT MODELS

KEY MESSAGES FOR DISTRIBUTORS AND FINANCIAL ADVISORS

With bank advisors moving upmarket and the low-end mass market being orphaned by advisors or investors not keen to pay for advice, an “advice gap” is likely to develop. In addition, the overlap between products and solutions offered respectively by asset managers and distributors is forming. Financial advisors and distributors will need to fill this gap by enhancing their advice models by adopting new technology and mandate-based fees, developing own asset management capabilities or specialising in determined products or services, such as long-term saving solutions.

FROM THE “ADVICE GAP”TO THE ENHANCEMENT OF ADVICE MODELS

NET RETAIL SALES OF UK DOMICILED UNIT TRUST AND OEIC BY DISTRIBUTION CHANNELS

Source: PwC Market Research Centre based on IMA FIGURE 15

Bank-based advisors are moving upmarket targeting wealthier customers and leaving the mass-market that is becoming less profitable. As an example, one of the largest private banks in the world has started to offer financial advice only to clients with at least £50.000 in savings or £100.000 of annual income, due to the constraints coming from the implementation of RDR and changing customer expectations. As a result of banks moving upmarket and the low-end mass market being orphaned by advisors or investors not keen to pay for advice, an “advice gap” has formed. This is particularly true in the case of the UK and a very similar pattern emerged in the Netherlands. Since the implementation of RDR, the market share of UK fund platforms in the distribution of domestic products to retail investors increased from 38% in 2012 to 62% in 2014, as most retail investors cannot afford to pay for financial advice (see figure 15). The ban of inducements has changed the distribution landscape as it has actually increased the number of people seeking execution-only services. According to Fundscape, around 10-13% of the UK population sought financial advice before the implementation of RDR, but afterwards that number decreased to 7-10% 48 .

GBP million

-5.000 0 5.000 10.000 15.000 35.000 20.000 25.000 30.000

29,898

RDR

20,502

20,763

18,540

14,251

44%

39%

38%

53%

62%

2010

2011

2012

2013

2014

Direct*

Fund Platforms

Others

*Direct includes sales througha sales forceor tiedagents.Alsoprivate client salesofown funds.

Source:PwCMarketResearchCentrebasedon IMA

48 Alfi, Navigating the post-RDR landscape, September 2014

38