The RDR has changed pretty much everything, not overnight, but over time. Whether firms adopted its themes for commercial gain or as a result of regulatory pressure, we’re in a very different world from that of two, three or five years ago.
Net sales into more progressive wrap platforms are now running comfortably ahead of those into fund supermarkets. Gross sales may flip beyond the 50 per cent mark in the current quarter. There is no going back. Or is there?
If I think hard enough about the move towards so-called ‘superclean’ (TM) share classes I find my mind drifting back to the 1980s, when life companies started adding external funds. Back then the driver was to be seen to offer no choice. An admirable motive, even if it was sometimes funded by soft distribution deals.
Today, the concept of open architecture has evolved, such that it is now truly open. Alarmingly, though, today’s ‘innovation’ is to try to narrow the choices clients and advisers make by introducing variable-priced share classes (that otherwise do exactly the same thing). In an industry that has attracted precious little trust due to overselling and complexity, what is now to be gained by seeking to constrain client choice and, presumably by extension, the range of potential outcomes?
Now it would be great if all of this filtering was being done with clients’ interests at heart. But, of course, it isn’t. I know that because if fund groups believed that cheaper funds were in the consumer’s interest they would make them available everywhere. In reality, superior terms will only be made available where fund groups perceive platforms can direct (or, at least, influence) distribution.
Although this has always been the case, I think it’s a good thing for the platform market that this collusion is coming to the fore. For the first time, and in incredibly transparent style, it will soon be extremely apparent whether the various platform market participants are working for clients and advisers – trying to create better client outcomes – or if they are working for fund managers, attempting to flog more funds.
The former feels more like the future; the latter very much like the past. If you’re an adviser and you are using a platform that has negotiated superclean terms by claiming to drive distribution, you are in fact the product. Your platform is using you to drive its own commercial agenda, typically to subsidise its legacy cost base in the scrabble for profits.
To be clear, there isn’t necessarily anything wrong with this. As long as you know about it. But don’t forget this is kind of how we got here in the first place. And that has been deemed an unacceptable place by the regulator and seems (in aggregate) to have failed in building trust with clients.
In any event, make no mistake, this is binary. There is no room for the half-pregnant here.
Ultimately, every business has to make money to be sustainable. Some aim to achieve this by making their customers successful. Others find themselves aiming to achieve it at their customers’ expense.
