All across Europe – including UK – we are seeing changes to regulation, demographics and what investors want. Firms continue to evolve their business models and the industry slowly alters course.
Our last newsletter of the year covers our predictions for 2020 and beyond, including themes we’ll be including in our 2020 research programme covering retail distribution of investments in the UK and Europe, advised and D2C.
Thank you for reading this year. If you have any feedback, questions, comments or suggestions please get in touch.
Jeremy Fawcett, Head of Platforum (@jfawcett), on UK D2C
UK banks will focus on asset management and wealth management, as they shift away from transaction-based revenues to more boring and reliable business models. Goldman Sachs is eyeing mass market saving and investing and they are bringing serious fire power. Competitors shouldn’t take too much comfort from the often quoted “the banks always screw it up.” A successful ‘challenger bank’ in the investing space is more likely to be an established player than a digital start up.
Richard Bradley, Research Director (@R_S_Bradley), on European platforms
Pressure will increase on platform business models across Europe. The move from trailer fees to explicit platform fees will continue in Continental Europe (and the UK institutional space). The added transparency will lead to greater scrutiny of the services platforms provide to asset managers. We expect platforms to market themselves to asset managers primarily for their distribution potential, but they will also be working hard to improve their post-trade services to keep those asset manager clients happy.
In the UK retail market, where end-investors pay for platforms, B2B platforms will face further cost pressure. Financial advisers are looking to keep down clients’ overall costs. They are also more willing than ever to spend their own money on technology if it makes their businesses more efficient. Platforms will therefore find it harder to maintain their margins based their services to advisers and will be increasingly driven into providing low margin commoditised transaction/custody solutions.
Danby Bloch, Head of Editorial Strategy (@danbybloch), on UK fund distribution and financial advisers
The FCA will focus hard on funds’ investment liquidity. The late discovery of Woodford’s fondness for potential unicorns in his income fund prompted the initial regulatory alarm and the reprise of gating property funds will give it yet more life. Maybe the regulator will see its way to blessing patient funds that are upfront about their likely illiquidity – or maybe only qualified CFAs will be allowed to buy them.
Consolidators will continue to hoover up older and smaller companies. They will also spawn new businesses, as recalcitrant advisers who don’t fancy the restricted life make a runner for independence in a series of entrepreneurial spasms.
Look out for disruption in both the platform and DFM worlds. Price cutting will grow fiercer as new kids on the block cut prices and attract business from older cohorts trapped in legacy technology and expensive business models that have failed to achieve sufficient scale. Much of it could end in tears – though perhaps not just yet.
Andrew Ashwood, Senior Analyst (@Ashwood47), on UK fund distribution
2020 will see asset managers deliver their first value statements. In principle, this is a welcome step towards the industry articulating its value added. Funds charging a lot for not that much will face increasing downward cost pressures.
But this move will have little impact on the end investor. Many investors don’t even read KIIDs before investing and only a quarter of investors say that they know exactly how much they pay in investment charges. The media would like to cause a storm about value, but there will be little for them to get their teeth into as these statements trickle out through the year and exclude many popular funds domiciled abroad. The squib is likely to be damper than originally expected.
Regulation will only start the conversation. It’s up to the industry – financial advisers, platforms and asset managers – to communicate the value of investing in clear, plain English. Those asset managers who genuinely have something good to shout about will succeed.
Mariam Pourshoushtari, Analyst (@mariamp_etc), on UK financial advisers
Adviser firms will have to contend with implementing another major regulatory challenge – the Senior Managers and Certification Regime (SMCR) – which started its roll out this week. Many underestimate the implications of this new wide-reaching regulatory requirement or how active the FCA will be in enforcing the new rules. Advisers may start to feel the strain on their margins as the regulatory burden continues to increase, but client pressure to bring down their total cost of ownership (TCO) will rise – especially if the markets turn.
Ross Langbridge, Analyst
ESG/SRI (environmental, social and governance/socially responsible investing) products and portfolios will continue to grab headlines throughout 2020. We’ve so far seen more activity on the supply side, with relatively little demand from retail investors. However, we expect to see a tipping point soon, as ESG/SRI becomes embedded in conversations and a default option rather than a sideshow. It will also become a core offering from asset managers, particularly active managers using green credentials to evidence their value for money.
Cristina Puscas, Associate Analyst, on UK D2C
In 2020 we predict further consolidation in the D2C space. The RDR was expected to lead to an expansion of the self-directed investing market caused by a shift away from financial advice. This triggered many new propositions coming to market, ranging from full-fledged open-architecture platforms to more limited ‘ready-made’ solutions provided by digital wealth managers.
The number of self-directed investors, however, has not massively increased, meaning that myriad services are now competing for a relatively static population of investors. Competition is fierce and customer acquisition costs are sky high. A few platforms are raising their game and can now challenge the market leader. Some of the smaller or less committed players will struggle to differentiate themselves enough. Some will turn to partnerships and others might look to exit the market completely or look for an acquirer.
Joshua Taylor, Associate Analyst, on European platforms
2019 saw a series of mergers and acquisitions in the European market, especially among cross-border institutional platforms. Fuelled by an injection of private equity money into the market, we predict that 2020 will see an acceleration in competition between the largest providers, especially Allfunds Bank and MFEX, as they seek to consolidate their assets by acquiring other players and gather a critical mass of asset manager distribution agreements. Both platforms will complete large acquisitions next year: Credit Suisse Investlab and Société Générale’s Security Services respectively. We expect more acquisitions to be announced during the course of 2020.