Earlier, I mentioned SBG and its forthcoming restricted status. Also in the news was Henderson Global Investors’ increased new business. Henderson has two investment products with SBG. Under the new model, SBG will gain by having a state of the art investment proposition that can populate a centralised investment proposition without regulatory risk; Henderson will enjoy the flows that can come from a restricted arrangement.
I have no knowledge of the details of this arrangement, but such vertically integrated models enable the ‘product’ margin to be shared. Scale provides discount which increases competitiveness.
When asked about their criteria for discounts, a recent study found that asset managers answered, unsurprisingly, 100 per cent in favour of ‘volume’ (see Chart 1).
We then asked what volume would justify a 10bps cut in AMC. The answers varied from £20m to over £200m (see Chart 2). Only restricted propositions can promise such fund flows.
There is little doubt that asset managers will seek more restricted or vertically integrated arrangements. Discounts will not stop at Skandia, Standard Life and Hargreaves Lansdown. Life company-owned platforms will leverage these relationships; platforms with global influence will leverage that influence. You just cannot get the genie back into the bottle.
The concern for the IFA, typically a small business, is that they look very much like David in the battle against Goliath, with no scale, no clout and puny weapons.
But, do not forget who won that battle.
Clive Waller is managing director of CWC Research
Key Points
Under the RDR, the regulatory hurdle was raised to a level that makes independence a risky and expensive option
The financial services sector could be about to enter the brave new world free of rebates
Asset managers see platforms as aggregators not distributors.
