Helping with fund selection
Jeremy Fawcett
Friday, August 21, 2015

The government wants to radically improve access to advice but they can be quite lax about what they mean so anyone working on execution-only ‘guidance’ or simplified advice will be taking note as well.

Perhaps the most tried and tested guidance tools are the favoured funds lists which have fared ok with the regulator to date. We’ve been studying these and have just circulated our findings to subscribers of the Platforum UK Fund Distribution series.

They are increasingly viewed as an important distribution vehicle for funds and the Hargreaves Lansdown Wealth 150+ accounted for over 30% of fund sales onto the platform in March 2014. A number of other D2C players also have well established select lists and two have launched them this year.

There are now 12, of which some are produced by a dedicated team at the platform, like the Wealth 150. Others offer D2C alongside advised or discretionary services and have central research teams that produce lists that cater to each. Bestinvest’s research team, for example, produce the Premier Selection and Charles Stanley’s central team has recently taken over Charles Stanley Direct’s Foundation Fund List. Similarly, Barclays Stockbrokers has launched a brand new D2C select list this year produced by the fund product team who produce the fund list for Barclays Private Bank.

Others outsource, which is the case for Willis Owen, who produce the most compact list of 15 funds in conjunction with Square Mile, and TD Direct Investing use Morningstar. Trustnet Direct’s is based on parent company’s FE Select 100, so that’s a hybrid of outsourcing to an internal team.

TD Direct Investing’s select list is the newest and they felt they needed to get simplified advice permissions in place before offering what they bill as TD Recommended Funds. They also publish the TD Recommended ETFs which reflects how platforms are increasingly looking to include passives.

Overall, there is a bit less concentration in the funds covered by the D2C select lists than there was a year ago with 452 included on at least one. M&G, Fidelity, Jupiter, Schroders and Invesco funds appear most frequently. First State Asia Pacific Leaders gets the impressive endorsement of appearing on 11 out 12 of them.

With most lists including over 70 funds, the self-directed investor still has a tricky portfolio building job to do which will require further guidance. This is partly addressed by platforms that offer ready-made portfolios and multi-manager funds, often based on their select lists.

But there are important considerations for the investor that are not dealt with by select lists including asset allocation, tax and correlation. Investors will be looking for further guidance on these matters, or, in many cases, radically improved access to advice.

Platforum’s analysis of D2C select lists is based on interviews with fund selectors at eight direct platforms and a whole of market quantitative analysis. The report is available within the Platforum UK Fund Distribution research subscription. 

Join us at Platforum 2015, our 9th Annual Conference in October.