End investors in sight

D2C

End investors in sight

It’s been very busy in the D2C platform world and competition is hotting up as the April deadline for unbundled platform pricing approaches. Hargreaves Lansdown was the first to announce its post-RDR charging structure and was followed by Fidelity, Barclays and a host of other discount brokers and direct platforms in the days and weeks that followed.

The lang cat’s price comparisons are comprehensive (latest update at http://langcatfinancial.co.uk/blog/cut-price-fruit-russian-oligarchs-gary-coleman/) so I’m not going to reinvent the wheel, apart from pointing out the outliers. These include a pretty expensive Chelsea, which announced its charge of 60bps (which includes the Cofunds fee of 20bps) and Barclays at 70bps for £5k but tiering down quickly to 35bps from £10K. At the other end, Charles Stanley Direct is one of the cheapest for the modest end of the market with a fee of 25bps up to £250K and then 20bps from there upwards. In a bid to attract customers from other platforms, it will also waive the platform charge for a year for all new money and transfers to its platform until 1st April 2014.

Price competition has been accompanied by new market entrants. Strawberry Invest, from Prydis Wealth and powered by IFDL, launched mid-February. Three weeks after launch, it cut its fees by 5bps after signing up 150 clients; 150 clients don’t sound very many to me so either they were all fabulously wealthy or the price cut was a promotional gimmick (the platform was originally priced at 40bps for assets up to £50,000 and 35bps up £250,000. It has shaved 5bps off both price bands).  In March, Trustnet launched Trustnet Direct. It charges 25bps with charges capped at £200. Dealing charges for funds and shares are £10, falling to £6 for customers who transact more than 10 times a month. The pricing compares to AJBell’s Youinvest which charges 20bps with a £50 quarterly cap.

Last, but certainly not least was the announcement that Bestinvest has teamed up with the Times to offer a D2C and financial advice service. Readers will be able to invest through an execution-only platform or through a regulated financial adviser via a white-labelled service called Times Wealth Management Services. The fees will be the same as the main Bestinvest service. This is a very clever move by Bestinvest. It gives it access to a huge captive audience (in January 2013, the Times had a circulation of 399,339 and The Sunday Times of 885,612).  Furthermore, investors will be able to dip in and out of the full range of advice and discretionary wealth services as and when needed.

Projections

We believe that D2C will be one of the fastest growing platform segments, which leads us on to our five-year projections. We work out three growth permutations, pessimistic, realistic and optimistic, which take into account various economic and industry drivers (for more information on how these were calculated, please get in touch). Our realistic scenario suggests platform assets could grow to £897bn by 2018, while our optimistic scenario suggests assets could be as high as £1.3trn.

D2C
In general, our views on the impact of RDR have not substantially altered. We still expect some customers to be unhappy or unwilling to pay for advice and D2C business to grow as a result.  Although there are opportunities for non-traditional channels (particularly banks and trading platforms) to break into the market, we also expect the advice channel to remain prominent and the market as a whole to be heavily intermediated.  The fastest growing business segments will be the D2C and wrap segments.

D2C

We expect the industry to continue to grow off the back of economic recovery, improving investor sentiment and off-platform assets moving on to platform. RDR is a general driver of growth, with the adviser-charging functionality in particular feeding the growth of business on platform.  After several years of slow growth, the UK economy has started to pick up again. The more persistent recovery and the expectation of annual economic growth of 2.5% per year will galvanise the industry. Auto enrolment will also have a benign impact on the industry, encouraging people to save for retirement and more importantly providing a monthly cushion of flows for the industry.

Have a great week and Happy St Patrick’s Day.

Bella