The Financial Services Specialists

 

Bluerock held a roundtable for senior asset managers to discuss the impacts and opportunities presented by the RDR for the asset management community. Please find below an overview of the key points from the session.

Bluerock have developed significant insight into the impact of RDR, how the market is reacting and the key action points for organisations looking to respond successfully to the opportunities it brings. For more information call Michelle Cracknell or Paul Martin on 020 7213  9760 or e-mail .

KEY POINTS

Summary

-        RDR will happen in January 2013

-        It will change the Financial Services and Investment landscape dramatically and extensively; these changes have commenced and will continue over the next few years

-        The regulation is merely creating a focus for changes that have and will continue in the market reflecting the demands of the consumer 

-        It is likely that Asset Managers will:

o   find margins squeezed by platforms

o   have to adjust to the greater use of passive funds

o   need to develop a multiple distribution channel strategy

-        New entrants will enter the market

-        IFA models are under intense pressure with their numbers likely to fall significantly

-        The quest for all IFAs to deal with only HNW clients is unrealistic; there are not enough to go round

-        Asset Managers should reinvent their relationship with the end investor, their offer and operating model

-        Technology will be key in any RDR response because of the preferences of the consumer and the economics of service delivery

Calls to Immediate Action

-        Define and sign-off your plan

-        Scenario test your post 2013 route(s) to market

-        Plan for margin squeeze by challenging your operating model

Detailed Notes

The discussions were built around three critical areas of RDR impacted activity;

Products and Services

-        The impact of passive products should not be under-estimated. The increase in demand for top down balanced investment solutions which derive their performance from asset allocation and risk rather than stock picking pushes in this direction. A potential 50/50 split between active and passive funds was predicted as a likely out-turn. Additionally the issue of over-production of funds was raised, with some organisations still treating new fund development as the default reaction to market changes. The need exists for organisations to take a strategic view on the mix of passive and active funds and fund provision.

-        The flux around products and pricing was highlighted. Announcements from Asset Managers of lower priced funds are counterpointed by one asset manager increasing the AMC by 10bhps. This is exacerbated by increasing margin compression which RDR is likely to increase. The increase in competition and the need for pricing transparency will inevitably create a shrinkage in the overall value chain with the income of asset managers being affected accordingly. The need is for Asset Managers to react to protect their income through innovative responses. This will mean critically examining the operational model to reduce costs e.g. challenging the number of funds, especially the number of old funds, to ensure a properly rationalised, streamlined offer   

-        The impact and influence of Platforms were discussed; friend or foe of the Asset Manager? The number of Platforms currently in operation is circa 30 and some form of rationalisation is inevitable with an equally inevitable squeeze on margins. The services they provide also came under review.  Whilst they offer a back office support service the reality is that clients still come to the Asset Manager for insight and reactions to issues/market movements which means Asset Managers still retain many of the costs. The implications of this stretched into the conversation on distribution on the need/demand for D2C propositions for Asset Managers. This in turn led to speculation around the potential for Platforms to create D2C propositions of their own.

Distribution

-        At the heart of RDR will be a new distribution dynamic that will reduce current routes to market and demand innovative responses from Asset Managers

-        The future of the intermediary market was discussed with a strong belief that a significant number of IFAs and networks will struggle to survive post RDR. The IFA market is in turmoil with many firms with clear plans to be fully upskilled but with a limited sense of how their business model will succeed.     

-        It was asserted that the IFA market had come to the realisation that the HNW and UHNW space was going to be over-subscribed after 2013 and were now looking to make the fee based model work in the Mass Affluent sector, with no research to support the likelihood of this succeeding

-        In response Asset Managers were advised to look at how they interact with intermediaries, suggesting that they undertake a clear segmentation of the sector to identify the likely winners and to create an innovative engagement model with those organisations

-        However in the expectation of IFA numbers reducing, changes in consumer behaviours and the threat of new entrants the opportunity/necessity (?) for a D2C offering was emphasised. Routes to market will narrow or even disappear post RDR, so creating and owning a channel could be a strategic necessity. As part of this discussion clear support was expressed for the power of technology to facilitate a new consumer centric positioning for Asset Managers.

Regulatory Compliance

-        RDR will happen largely in its current proposed form. The only changes are likely to be a little leniency on adviser qualifications by January 2013. The FSA Platform paper is unlikely to change the stance on rebates. 

-        The Financial Conduct Authority (FCA) plans to be more judgemental post 2013 - they will intervene early and act quickly with enforcement actions.    

-        The threat of product intervention has not gone away, the regulator(s) are unlikely to look at prior approval but inevitably they will be more active.

-        Post 2013, three regulators will be functioning in the market - all of them looking to ensure a consumer sensitive market Europe-wide

The potential for imminent confusion is significant as overlapping regulatory activity will mean parts of RDR will be impacted by MIFID 2 and UCITS 5 even before it has bedded in. Significantly UCITS 5 and MIFID 2 will be the first major Brussels intervention in the market.