The Platform and Wrap debate has started to become complicated for all the participants involved. Wraps don’t know if they need to become more platform like, platforms think they need to become more Wrap like, CRM systems could become the Wrap of Wraps and pure fund supermarkets are wondering what to do next.
So where does that leave the adviser? Scared of making the wrong decision, wondering if their current provision is suitable and looking at the Retail Distribution Review with trepidation most likely.
In the days when fund supermarkets were relatively new and as such were an innovative and refreshing way for an intermediary to do business, their position in the process was clear. It was this clarity which has led to the enduring success of some of the well known names in our industry.
However the great antipodean ghost hung above the market threatening to make everyone’s charging transparent and efficient. It whetted the appetite of the FSA who could see a systemic way of delivering unbundled charging back to the customer.
In fact with the Retail Distribution Review driving the move to fees and thereby phasing out the impact of commission, the efficient management of the client relationship has become even more important. I’ve covered off the importance of reviewing processes in my last blog, but this is the FSA effectively saying the concept of a system(s) which can help manage the investment portfolio of a customer, with whom there is a fee relationship, is ideal for product to customer transparency. In fact their last paper published in March 2010 effectively said as much.
So where does that leave the intermediary? What is the best way to evolve their business model?
The key word is transparency. Platforms / supermarkets have often peddled traditional products alongside the purchase of mutual funds, with commission rates similar to those already enjoyed by the adviser. They could do this because effectively it was an old style product on new style technology.
But this isn’t possible in the post Retail Distribution Review world, so what do platforms do now? If they need to move towards a transparent charging structure then this is an expensive undertaking.
Does this mean then that we might see wraps and platforms merge or acquire each other? With new entrants coming into the market all the time can the smaller independent platform and wraps really survive against the buying power of the large providers? Especially when re-registration is finally forced through by the FSA, as surely it must, then the winners will be those wraps that can provide the cleanest, most transparent offerings with the cheapest charging structure. If this is the case then scale matters. This is why even relatively late entrants into the market are coming now with real scale and deep pockets.
So who the heck wins out in the end? Probably the traditional providers, however there is good reason to believe that this is a story not finished and that there is another model or two out there that might end up surprising the market.
More in the next blog....
Martin McKenna - 20th May 2010