The post-RDR story was supposed to go like this: as the platforms who previously based their revenue model on retaining rebates will no longer be able to do so, they will start to introduce more assets they can’t get a kickback from.
Ergo, things like investment trusts, structured products, exchange traded funds (ETFs) and gilts will start to become more common. So the big question is why does that not seem to be happening?
In terms of investment trust usage we have seen an increase. In assets under administration (AUA) there has been a 147 per cent increase across a two-year period. However, total platform AUA has also increased by 82 per cent in the same interval so a significant portion of the investment trust increase can be accounted for by the fact that overall assets are consistently growing at a strong rate.
There has also, however, been a slight increase in the percentage of overall assets that investment trusts account for – from 0.59 per cent to 0.85 per cent. So usage has been stable and is growing slightly.
Although these are small numbers in percentage terms, they still account for large sums of money and this is a similar story when looking at other more ‘esoteric’ asset types. Bonds, structured products, ETFs and direct equities have all fluctuated there or thereabouts the 1 per cent mark of total assets.
Just under 5 per cent of all non-cash assets held through the platform are not mutual funds and this is significant because they are clearly an element of many client propositions.
In terms of the assets used, the only true certainty is that the trends will fluctuate and having the ability to cater for those is crucial. As we are starting to see in a number of areas, the RDR isn’t necessarily doing what it said on the tin – but not always in a bad way.
Rather than homogenise on asset availability, the market is polarising into two camps a) platforms that have no agenda to influence asset choice and b) platforms that do. In the b) camp, this is manifesting into what are essentially guided architecture, preferentially priced fund propositions.
The strategic intent of these is variously a combination of: allowing for a higher platform charge, minimising easy comparison, achieving the perception of an overall lower cost or finding a different way to derive margin from the funds themselves.
And these provide little room for anything other than the more mainstream mutual funds. The result is that the supposed migration to wider investment propositions is not happening and in fact the sales and marketing machines are seeking to further narrow the funds that investors use through these platforms.
A further barrier is the expansion cost for big companies; they simply don’t see such a low percentage of assets as worth the development hassle, so they favour the preferential pricing strategy.
Terry Huddart, market insight manager at Nucleus
