Sub-advised retail funds have continued to be a bright spot in asset management over the past year, with assets having once again grown faster than the wider market. That is the picture that we see in our latest report – UK Wealth Management: Investment Distribution – that looks at the funds and other investment products distributed via wealth managers.
Larger vertically integrated firms like St. James’s Place, True Potential and Quilter take greater control of their investment management offerings by adopting a sub-advised approach. They are able to run their own products efficiently and command a greater share of the value chain by outsourcing fund management.
But adjustments have been made to fund ranges to align with shifting demand and in response to Consumer Duty.
For example, St. James’s Place (which only offers sub-advised funds to all of its 900,000 clients) has merged four UK income funds into one, converted gilt funds to global-government equivalents and launched new risk-rated funds-of-funds (managed by SSGA) for pre-retirement accumulation.
This week’s ‘dear CEO’ letter to wealth managers will heighten anxieties around their fund ranges with the FCA promising more targeted, intrusive and assertive supervision. SJP already rated 13 of its 45 funds as delivering insufficient value back in March and implemented price reductions.
The regulator is showing its teeth but the sub-advised model will remain attractive to wealth managers. However, the stakes are high and it is important to avoid missteps around delivering products that meet the needs of specified target markets. This will lead to continual adjustments to product ranges and asset managers should see this as their chance to secure a slice of the pie.