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Putting the role of platforms and the ‘nasties’ of trail commission to one side, the Retail Distribution Review seems to be increasingly fuelling the debate over non-commission paying investment vehicles and their expected take-off after 2012.

Sales of investment trusts, passive strategies and ETFs are all expected to rocket after the RDR strips commission bias out of the industry.

As many groups are taking a closer look at the breadth of their product ranges as a result, the emphasis seems to be shifting away from the intermediary (and what will and will not constitute the ‘I’ in IFA) and on to the manufacturers in terms of the impact of the RDR.

It may have take a few years, but the industry seems to have got its head around the implications for the adviser community, and the fees versus commission-based models of intermediary.

Similarly, the sales-versus-advice argument has been raging for so long now, it seems pretty well understood. Unless everything changes again, of course.

But from a fund perspective, the other obvious issue is the requirement for several different share classes. If the IMA (not even including all the offshore funds which are going to be introduced in the new year) already has around 2,000 funds across its sectors, and each of these needs to introduce a number of new share classes, all of a sudden the advisers, and their clients, are faced with a ridiculous number of funds from which to choose.

As it was put quite succinctly to me by one MD of UK retail this week, “Is that really clear, fair and not misleading? Dealing with 20-odd thousand funds?”

In all the vain attempts to clean up the industry, once again the solutions proposed appear to be overcomplicating matters once again.

That the world is changing is more apparent than ever.

The ‘too big to fail’ theory clearly doesn’t exist any more; hedge funds are creeping into the retail space; fund groups are consolidating at a quickening pace and the growing importance of platforms - alongside the changing role of traditional life and pensions providers - is impossible to escape.

Add to this the imminence of the Retail Distribution Review and Ucits IV and we all seem to find ourselves in a situation where more than ever, no one really knows which way to place their bets.

The tug-of-war for available basis points is a game with a growing number of participants and the danger, as always, is how much room there actually is to manoeuvre.

If more and more parties are chasing a finite number of bps, surely the danger is that the products will become more expensive, in order to fund these additional ‘layers’?

And if that’s the case, even though the clients will be benefiting (one would certainly hope, anyway) from the additional consolidation of assets and streamlining of systems, will they be as accepting if their bills start going up?

While the guided architecture model seems a bit murky to some, threatening the I in IFA, other models have performed as such for years – take Hargreaves Lansdown for instance.

Love it or hate it, it is hard to deny H-L is one of the industry success stories of the last 20 years. While it operates its IFA model separately, even within the discount broker arm, the Wealth 150 has clearly become a list worth reading in the wider world. Is that not a level of guidance, recommending 150 funds from a couple of thousand?

Similarly Chelsea Financial Services’ Leaders board or its Premier League hold equal merit.

(I am fully aware there are a number of other players in the market, by the way, before you all start writing in ‘reminding’ me of them, these are just two examples)

While not strictly pure IFA or wealth advisory businesses, if the number of IFAs reduces under the RDR, will we start to see more discount brokers emerge? These businesses and the staff within them are clearly opinion leaders, substantiated by the sheer heavyweight of their client lists.

I think most of us welcome the transparency that should come with the RDR and the splitting out, or ‘unbundling’ of charges to clients, but if they come at a cost, is it fair for such costs to hit the pocket of the client, who didn’t ask for said changes in the first place?

Unsurprisingly, given the degree of upheaval in the platform space at the moment, two major names from within the sphere of influence have parted ways with their organisations.

Last week concluded with the news that head of FundsNetwork David Dalton-Brown was to leave Fidelity, having been at the organisation he was drafted in to build and promote for the last five years.

Subsequently, this week kicked off with the announcement Andy Creak is set to leave Cofunds, having co-founded the business back in 2001.

Walking out the door with him is finance director Andrew Harris, who is set to be replaced by Mark Williams, formerly of Skandia.

While two leading players are off to pastures new, it brings about something of a ‘new world’ of platform development.

These are just a few recent developments this year, following Fidelity’s DC and fund platforms merging, Axa’s Elevate being brought into the over-arching Axa Wealth business, and the Selestia wrap was fully ensconced within Skandia Investment Solutions earlier this year.

Philip Martin leaving Nucleus took a few people by surprise, though he has now popped up at F&C Asset Management.

With only a limited pool of people sharing such a passion for the evolution of platforms, you wonder whether the pace of consolidation of those still in existence might even be accelerated by a sheer lack of people capable of taking the businesses forward.

I keep hearing the same observation from people in the industry recently, and it seems somewhat retrospective, and therefore a bit pointless (though I’m as guilty as the next person), which is that there was no summer lull this year.

While many of us in financial services and fund management are used to the calming-down period between mid-July and early September, where we can catch up with admin, go on a guilt-free holiday, get on with some forward planning, this year there was no such chance.

Whereas you might think the disastrous last 18 months might have lent themselves to a more exaggerated quiet period, quite the opposite was true.

Whether it was us journalists scrabbling for new angles on old stories (yep, we’ve all had those days); advisers still trying to find good reason to talk regularly to their clients, offering faith in the ongoing need for their services (despite a lack of faith in the wider financial systems); or fund groups desperate to offer insights from their leading voices, the area which smacked most of a desperation for share of voice in terms of the communications within the industry has been from the advertising arena.

While it’s easy (and obvious) for me to get a bee in my bonnet about quirky advertising creative, as it usually means our weekly publication losing a day’s production time, I do doff my cap to some of the lengths some have gone to, in order to achieve cut-through (Artemis’s X-ray insertion, anyone?). It seems as the sector has started to pick up again in terms of marketing spend, the efforts to be as outstanding (i.e. standing out) have gone to pretty dizzy heights.

But as the ’summer’ concludes, and the recession is pretty much abating, what has not yet filtered down to fund/adviser level is the calm, confident demeanour that comes with thinking about long-term investing.

We are still feeling something of sense of panic, of short-term gain, where weekly and monthly performance is still seen as worth talking about, and fund houses (and distributors) seem to want to be all things to all men. Be it introducing derivative strategies, moving into unconstrained styles, opening a range of multi-asset or passive funds where there was none… everyone is after land-grab, including distributors. Or platforms. If indeed they are not one and same any more.

But I might pick up that debate another week….

It’s not a terrible state of affairs, mind you. At least it is showing signs of innovation, of ambition, of offering hope and choice for the end investor (and therefore giving you intermediaries those all-important reasons to pick up the phone to your clients).

I was amused this morning to read an article in one of the City-based daily newspapers regarding the latest “quartet” of leading asset management personalities predicting there would be further consolidation and subsequent simplification across the industry.

The words ‘no’ and ‘Sherlock’ sprang to mind, as the four parties quoted happened to be at the heart of the four most major mergers or acquisitions in the fund management space in recent years.

Those named, in case you hadn’t already guessed, were Larry Fink of BlackRock, Martin Gilbert of Aberdeen, Andrew Formica of Henderson and Alain Grisay of F&C.

Of course their views will be those of pro-consolidation. What with the New Star, Barclays Global Investors, Friends Provident and Credit Suisse Asset Management deals firmly under their belts, I’d be pretty shocked to hear any views to the contrary.

Also, surely the recession is bound to prompt a rather Darwin-esque theme to start emerging anyway. Fund groups are rare to launch in such stringent times start-ups are of course going to be fewer and further between than they would have done previously.

There’s Insynergy, which launched last year, plus several which have formed out of the wreckage of their former employers - Armstrong Investment Managers rising out of the embers of Insight, Neuberger Berman out of Lehmans, and one of the latest casualties, a former Keydata member of staff gave Arbuthnot a new lease of life in setting up Gilliat, to name a few.

But to claim a “prediction” around the exponential consolidation of fund groups is hardly the most insightful piece of journalism, given the current environment.

I think aside from the obvious candidates (everyone waiting for Clive Cowdery’s next target, Ignis’ newest joint venture, Schroders ever so proud of the ‘war chest’ of cash they seem to have accumulated, for example), if people started talking about Invesco Perpetual joining forces with Investec, or Fidelity merging with an M&G to create a superpower fund house, now that’s a story.

And would also be a little scary in terms of the sheer size of them.

Cofunds hit the headlines recently with news of its increased charges to fund groups, a move that would see smaller fund houses hit hardest, based on economies of scale. While the actual figures are as yet unpublished, numbers of four and five basis points in some cases are being bandied around.

Others, including Standard Life and FundsNetwork are looking like following suit, with only the likes of Transact, Nucleus and possibly Novia genuinely expected to be running a truly independent platform, from what I hear.

Now, while one can appreciate there are costs involved in running a platform, particularly as the space becomes increasingly competitive and more ‘bells and whistles’ are added on, the ‘pay to play’ waters are becoming increasingly muddied.

Two things seem a bit harsh. First, the companies involved are applying these costs retroactively, with terms being negotiated based on back-book levels.

Second is the whole idea that guided architecture - effectively how the platforms are justifying these additional costs – is based on commercial, rather than strategic, arrangements.

Yes that sounds incredibly naïve, but if you are going allow yourself to become subject to this filtering process, you might as well get involved in a pseudo-tied arrangement with a leading bank or building society. Which goes against the ethos of the independent financial adviser, does it not?

What else concerned me, having spoken to one retail MD recently, was that the platforms are justifying these additional costs they’re creaming off the fund groups on the basis of acting as a distributor. Now, forgive me, but I’ve always worked on the understanding that it is the intermediary, or the adviser who is referred to as the distributor, not the administration platform. Are they then entering into the realms of pseudo-advice, and in which case shoulder some of the responsibility for products sold?

Does this all mean we are dipping our toes back into the murky waters of multi-tied arrangements, but under a different mantle?

Or is it simply being upfront and honest about the investment advisory and asset allocation capabilities of many independent financial advisers, that will, especially in the the post-RDR world, be under even more pressure to deliver and simply arming them with the most cost-effective tools with which to work?

We came across some rather surprising research last week, indicating that the majority of IFAs favoured structured products as their preferred investment vehicle when recommending solutions to clients.

The research came from Morgan Stanley, and while I’m in no doubt of the credibility of their methodology, I do wonder who these IFAs were they were talking to.

Read More »

While historically investors were inclined to “sell in May and go away”, this year has proven the exception to the rule.

The fact is that so few people were actually in the market in the first place, compared to recent years, there was nowhere for them to actually ‘go away’ from.

Rather, what we have been seeing is that investors (fuelled by the media, granted) are leaning towards particularly short-sighted views with regard to the markets and where they are throwing their money. Read More »

As banks try to justify their second-quarter pay packets, authorities should be asking them a simple question: do utilities need to pay banker-style bonuses to succeed?

If regulators are due to turn banks into crisis-proof - or idiot-proof - utilities, surely incentivisation should be more mundane?

The fact authorities have not been pushing this utility vision is, in part, because it is complicated to execute. To make consumer banks safe and insurable by the taxpayer, it would have to split consumer and investment banking activities and ensure commercial banking is funded purely by deposits.

To make investment banks safe, it would have to regulate them more scrupulously and, in addition, regulate all financial companies and investment funds to ensure a shadow banking system does not develop. Above all, no one institution, for consumers or professionals, should remain ‘too big to fail’.

This is a massive overarching task that needs co-ordinated microeconomic analysis from the FSA, macroeconomic input from the Bank of England and the ultimate support of Parliament - by proxy, the taxpayer. To accomplish it, authorities need to invent a new-look brand for the UK that confirms it as a financial centre and innovator without scaring off capital.

This is hard, but not impossible. In another industry, Ucits regulation provides a reasonable, if imperfect, model, in that it has made funds safer, more flexible and more attractive to international investors. Politicians from the two main parties have pushed this integrated vision too passively. Even the supposedly more radical Conservatives have called for the abolition of the FSA, which would complicate policy co-ordination and deprive it of checks and balances.

If the state fails to simplify UK banks along such commonsensical lines, they will remain high-wire acts too complex to survive without the best talent and pay.

A gigantic international conglomerate, basking in its too-big-to-fail status, suddenly announces not only its first annual loss in many years, but a multi-billion-dollar hole in profits that leads to a restructuring.

Governments initially decide the company can stagger on without their help, but then force it into bankruptcy three years later. Investors who thought politicians would never let the company go under lose millions.

Is this a brief history of General Motors from the beginning of 2006 to the present? Or does it describe a financial giant that announced a massive loss at the start of 2008 and repaid its state aid so it could distribute bonuses in 2009, but thereby drained the company of funds and was declared insolvent in 2011?

Investors who feel the political status quo is too entrenched to let a bonus-guzzling institution go under should heed the example of the automotive industry. In spite of bank-like pressure from oil lobbies, unions and car executives, even right-wingers started admitting massive gas-guzzlers and their manufacturers were unsustainable.

But if politicians did for General Motors by their absence, they may yet do for financial institutions by their presence. Regulators have been working overtime to get a grip on their books and on the credit derivatives markets that insure their debt. One key problem with the Lehmans bankruptcy was such knowledge was unavailable. The result was panic, rather than extreme and understandable dismay.0

With this knowledge at their disposal, regulators may find a structured bankruptcy much easier to pass. Faced with a rise in their cost of borrowing, governments may be more inclined to let a troubled company default, after committing well-heeled investors to buying its assets.

The General Motors break-up and the forced tie-up of Chrysler may yet prove a model for what is to follow.

Committed baseball fan Ben Bernanke couldn’t have chosen a more appropriate team to support than the Boston Red Sox.

No other team could better encapsulate the Fed chairman’s career of late than the Red Sox, which before 2004 had gone through an 86-year spell without winning a championship.

Similarly, Mr Bernanke has undergone a similar Renaissance following a period where the extension of his four-year tenure as chairman remained under question over his handling of the US economic crisis.

Yet the Fed chairman stepped up to the plate again last week in his semi-annual testimonial to Congress, no longer swinging wildly.

He appeared at his own Fenway Park, backed by recent praise from president Barack Obama and support from peers, bearing both good news and bad.

Mr Bernanke argued, although financial conditions remained stressed, there were some signs of hope after the precipitous fall in markets earlier this year.

Highlighting the gains made in equities markets, the reduction in risk aversion and new corporate bond issuance, Mr Bernanke said the moves could be traced back to the Fed’s policies.

He called for hard choices to be made, reflecting those made during the Red Sox championship winning season, which they had almost thrown away.

He added: “Addressing the country’s fiscal problems will require difficult choices, but postponing those choices will only make them more difficult.”

In the 2004 World Series, the Red Sox overturned a 3-0 game deficit to go and win the championship, a feat never before accomplished. Now, all eyes remain on Mr Bernanke and whether he will be able to overcome a deficit of confidence from vocal politicians on the left and right.

Will he continue to prosper beyond 2010 as chairman? It will all depend on the curve balls.