The right incentives
I’m interested in the incentive issue more than anything else here. I buy that re-registering assets in-specie is hard between platforms, especially in complex model portfolios, and that this reduces the velocity of money moving around the market.
I get that some providers simply suck at admin, and that some fund managers still prefer carrier pigeon to daddy’s estate as opposed to automated transfer technologies. I get that the benefit of one platform over another is often marginal, and that it’s hard to get a client to pay for the time and effort involved. I get it all.
But I also note that none of the above issues seem to apply when a firm is acquired by a consolidator or a vertical integrator. At that point the money starts flying into the new solution like….I don’t know, a bat on amphetamine or something. The difference? It’s not the admin, it’s not the investment bit, it’s not that the client will stump up. So what gives? Could it possibly be that the incentives for the business owner(s) are proving stronger than the disincentive of the extra work? I think we should be told – and we weren’t. But we need to be in the final report.
Potential improvements
Speaking of the final report, here’s our prescription for what we’d like to see. It comes in five parts.
1. Switching between platforms
The ease with which both advised and non-advised clients can move between platforms touches on lots of juicy subjects, such as exit fees, share classes and transfer times. The snappily titled ‘Transfers and re-registration working group’ recently published a framework for improving things in this space, having been “encouraged” to do so by the FCA. We expect this to be agreed and implemented at pace and we’d like to see the final report reflect this.
2. Shopping around can be difficult
This one is aimed at the direct space, and while we would applaud moves to make it easier to shop around, in a world where 27 per cent of direct consumers either don’t think they pay platform charges or don’t know, perhaps more work is needed on clarity of charges disclosure first. Some of that big FCA research budget could be diverted into working up usable models for disclosure that don’t make everyone want to sit under a tree, rocking backwards and forwards.
3. Model portfolios
That consumers using these model portfolios (mainly via direct-to-consumer providers) may have the wrong idea about the risk-return levels they face also feels like an area in need of improved disclosure and clarity of information, rather than a standardised industry approach. Mifid II disclosure on advisory models will also drown investors in paper and this needs covering in terms of what good practice looks like in the regulator’s eyes.
