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Current Projects The King’s New Clothes The RDR, platforms and the provision of advice – three reports from CWC Research A highly respected regulatory consultant has described the RDR as an experiment. Product providers, platform managers and asset managers cannot be certain of the nature of the industry landscape that they will face following its implementation in 2013. Such a radical piece of regulation will, without any doubt, cause disruption to business. Providers need to know to what business flows are likely to be in order to formulate their plans. Our study paints a picture of the post-RDR landscape. There are three key questions that we answer:
Other questions that we answer:
Networks
The King’s new clothes We know of no other country where commission for advising on or placing investment business has been totally banned. Moreover, all research, including that conducted last year by ABI and by JP Morgan, indicates that the consumer will not pay fees for advice – either at all or enough. In addition, the number of advisers is falling and looks set to fall further. Ernst and Young estimate that there are about 30,000 individuals advising on retail investments today. They believe around 20,000 will still be doing so at the start of 2013 - possibly reducing to 15,000 by the end of that year. Despite all of this, there has been a broad assumption that all will be well. The Treasury Select Committee does not agree. Whilst we have already seen significant change in the landscape, the fundamentals are not very different despite the proximity of RDR implementation. Research by Defaqto found that 83% of platform using advisers still takes commission. More recently, Cofunds have said that over 90% of their business is on a commission basis. Research by YouGov has found that the average IFA’s client portfolio is about £5 million. Even if it were possible to turn this all into fee earning assets, it would be wholly inadequate. Our own research indicates that a figure of £20 million should be the benchmark. Business model and cashflow We have identified what business models will be employed and what modeling has been carried out and how. Where it has not, we encouraged respondents to make forecasts, providing them with a structured process to assist them. There are many firms of considerable size who are dependent on commission at today’s levels. GPPs are still major sources of cashflow. Such firms may need an injection of capital to survive the change. Who will provide this and on what terms? How many adviser firms will look for low-cost investment solutions, such as passive, to offset high adviser charges, typically from 50 to 100 bps? IFA or restricted Most advisers intend to remain independent according to every survey published. Most top managers of providers and distributors believe the majority will opt for restricted status. We break the subject into bits, into small questions that advisers can answer, that, when taken together, enables us to identify the decisions firms and their advisers will ultimately make. It is so emotive for many IFAs that some say that they will opt to remain independent, yet are planning a model that will not meet the FSA’s requirements. The investment proposition may well impact on this. Many will opt for discretionary management of one form or another. There is still a lack of clarity as to whether relatively rigid investment propositions will qualify for IFA status. Mergers and acquisitions We have already seen much activity in this area. This will continue. Small firms tend to be inefficient, lack resource and know-how, and do not make exit easy. The concern for providers of investment management, platforms and software, is that the aggregated firms usually adopt a single investment and platform strategy. This results in big winners and lots of losers, changing the nature of the playing field for some years. Platforms Whilst the regulator and, perhaps advisers, expect the platform sector to mature and rationalise, this is not likely in the near future, as information technology does not stand still and there are still numerous new entrants in the wings. Platforms are key to a post-RDR model as they bring the necessary efficiencies and cost savings, proposition enhancement, including reporting, analysis and benchmarking and much more. It may make sense for many firms to ‘tie’ to a single platform with fully open architecture – perhaps one of the most likely routes to restricted advice. The issue is, of course, suitability, as it is with planning tools and much more. Investment proposition When we last looked at this subject two years ago, many of the issues that now concern the FSA in areas such as appetite for risk, DIFs, DFMs etc, were hardly on the horizon. Only a tiny proportion of advisers measured portfolio cost. Now many do. Methodology CWC Research has been conducting in-depth qualitative research in the intermediary market for over 12 years. We were one of the first firms to see the significance of platforms. We have access to most of the major firms at high level as well as adviser and administrator level. We decide who we speak to and do not rely on whoever answers the telephone or responds to an email. The quality of our reports is enhanced by the fact that we have been talking to numerous firms over many years, especially nationals and networks, but also regionals, and have observed how they have changed over time and to what extent their own forecasts have become reality. We adopt a multiple question process that identifies behaviours with much greater accuracy than the simple direct questioning adopted by many agencies today. In this study, this methodology has been remarkably revealing. Interviews average an hour and a half. The sample We interviewed around 25% of the top 100 firms. The total sample is in excess of 100. This includes interviews with CEOs and direct reports at major intermediaries to gain a more strategic understanding. The overall sample mirrors the IFA population that writes investment business and is based on data from My Touchstone. The costs The cost of the suite of three reports is £7,950 zero-rated for VAT. The individual reports are each available at £3,450 Deliverables We will deliver the output on Excel spreadsheet, enabling sorting and analysis by subscribers. In addition, subscribers will receive a detailed written report and PowerPoint presentation. A summary of the research will be presented to subscribers of the full suite. If you would like to discuss this, please contact Clive Waller: e-mail: clive@cwcresearch.co.uk
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Tom MacPhail
‘I have worked with CWC Research on several projects over the past few years; their market reports are invariably well researched, well presented, and well worth reading.’
Tom Baigrie
'We are professional people and we know what we are doing. We like to deal with people who are like us.
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