All set for a rebate-free world? We’ll keep you in suspense
Platform pricing in the UK has fallen since the RDR with a range of ramifications for companies across the value chain. This should sound a warning signal for platforms in continental Europe in the run up to MiFID II, but our latest European Fund Distribution: Market Overview 2016 finds that most platforms still have pricing models based on rebates.
The majority of B2B platforms have moved to dual pricing systems that can cater for explicit service fees as well, but most direct platforms haven’t because they don’t expect to see a ban on commission for execution-only services.
There is huge uncertainty around how MiFID II will be implemented highlighted by the unexpected Swedish government decision not go for a commission ban. Other governments may follow suit so it does make sense for platforms to pause before making strategic pricing decisions.
What’s the secret of platform growth in Europe?
The combined assets of the main European platform markets increased 13.8% in 2015 to reach €1,843bn. This has been driven by demand for a wide universe of funds and fund groups. This is facilitated by platforms that bring efficiencies to a wide range of distributors including banks, insurance companies and financial advisers.
Independence is also a factor. Retail banks have been guilty of over-selling their own funds to retail clients in continental Europe. Their private banking units need access to third-party funds to prevent their wealthy clients going to independent wealth managers, or perhaps robo-advisers in the not-so-distant future.
But platform growth is not universal and some propositions are having more success than others. Cross-border distribution is on the rise and institutional platforms operating across different jurisdictions are doing better than those operating locally. While there are competitive and dynamic adviser platform markets in Germany and France, UK adviser platforms are growing faster.
In the D2C channel, the leaders are growing but, with the exception of the UK, Netherlands and Sweden, DIY investing is still niche in Europe. A few markets do have some well-equipped D2C propositions ready to take advantage of the ‘advice gap’ that may follow MiFID II in Europe.
Opportunities post MiFID II
Fund markets in continental Europe vary and need to be addressed by fund providers with attention to local peculiarities. However, if we exclude the Netherlands where market dynamics are different as a result of the ‘Dutch RDR’, there are some common opportunities. These involve engaging with banks through ‘preferred partnerships’ and the underlying management of the funds they white-label. Beyond the big distributors, in every country there is an interesting pool of independent intermediaries with access to HNW individuals.
Our recommended ‘fund provider road trip’ would be: take a train to Paris to find the CGPIs (French IFAs), then autobahn to see independent wealth managers in Zurich and Munich. Finally, get on a SAS flight to Stockholm to meet up with some Swedish IFAs before heading back to Munich to visit one of the 40 German robos.