Earlier this week – before I drowned myself in dark chocolate and red wine in an attempt to make sense of the world – we held a roundtable in London with platforms, asset management firms and financial advisory firms about tracker funds and ETFs.
One attendee asked: “will platforms become guiders?”
It has become vogue among the chattering classes of the retail investment industry to openly and actively question the need for so many platforms. Yet there is also an increasing consensus that there are too many funds.
While there are around 40 platforms in the UK, there are a massive 264 funds in the UK All Companies Sector alone. D2C propositions look to narrow the choice with their select lists and there is a trend to cut their length – the HL Wealth 150 is famously well short of 150 and Fidelity have recently cut their list to 50.
If there were fewer active funds, those that remain could charge a premium. But with so many to pick from and so little to differentiate each one, what is an adviser to do?
Many advisers turn to the likes of Morningstar, Square Mile or a DFM to help them create a panel of funds. (Platforum will scrutinise the processes of rating funds in an upcoming report on research and ratings firms. Get in touch to share your views.)
It all poses the question: is there a role for the platforms to play in whittling down the choice for advisers? After all, the concentration in the top funds is high. We have heard anecdotally that at some platforms as much as 90% of assets sit in the top 20 funds. Perhaps then it is a short jump for platforms to become guiders and advisers might welcome some guidance.
This would put the platforms in the driver’s seat with regard to negotiating with the fund groups. This would mean they could get institutional pricing on the back of it from lots of fund managers with a potential seismic impact on the market.
Already we see Old Mutual Wealth offering Wealth Select which seeks to combine competitive pricing with funds it believes to be premium players in each sector. Aviva’s more recent Select Funds range is compiled by Aviva Investors but excludes their own funds.
In Europe, institutional platforms welcome the prospects for open architecture and are expanding the range of third-party funds they offer. However, continental adviser and direct platforms are increasingly looking to reduce the number of funds they provide. Here we see a move to investment solutions (model portfolios, robo tools, etc) and a move to guided architecture.
At Platforum, we do not believe there will be a wholesale move to platforms as guiders. However this may be the next step in their evolution, amid a host of features to distinguish one platform from another. And that throws a spotlight on what fund managers should do to make their offering distinct.