While clearly not an intended consequence of RDR, the shift towards do-it-yourself investing looks a certainty.
Even in the first few weeks post-RDR, anecdotal evidence suggests execution-only brokers are already seeing an increase in business from people who have previously taken advice but are now unwilling or unable to pay a fee for it.
Meanwhile, many advisers are planning to refocus on high net worth individuals – based on pure economics – and introducing minimum client asset thresholds.
To put some figures on this shift, the number of intermediaries offering non-advised services is set to triple in the next two years as they look elsewhere for revenue. Research from CoreData estimates the size of the execution-only market in the UK will grow almost threefold from 1,950 advisers in 2012 to 5,375 in 2014.
In fairness, the growth of execution only has been occurring over several years, with a number of platforms, wealth managers and adviser firms adding this capacity to their arsenal. Groups focusing on transactional business have enjoyed a surge in profits since 2006, with figures from ComPeer showing profit growth of 165% against just 15% from wealth managers.
Threat or opportunity?
With this in mind, many wealth businesses are understandably looking hard at whether RDR represents an opportunity – or potentially a threat. Several have entered the execution-only space in recent months, with the imminent Charles Stanley Direct platform among the highest profile.
While acknowledging the growing role of self-directed investment, Charles Stanley Direct’s Ben Yearsley is not convinced this represents a threat to wealth managers.
Yearsley will work on Charles Stanley’s direct-to-consumer offering, powered by the group’s stockbroking platform and incorporating existing investment, share dealing, Sipp and Isa offerings.
“Our view is that there is room in this space for new entrants, with only a small number of existing platforms,” he says.
“Rather than threatening wealth managers, we see a growing polarisation among investors, with many either moving up to a full discretionary service or down to execution only. When it comes to investment advice, we see the middle intermediary ground getting most squeezed by this, which is why many are moving to a more holistic planning type service.
“We are not concerned Charles Stanley Direct might cannibalise our traditional wealth business and see good growth potential in both – from a business perspective, we are obviously better off with two flourishing areas than one.”
Advice vs. ‘guidance’
Elsewhere, execution-only veteran Bestinvest has also introduced the Free Investment Report Service & Tool (FIRST) service backed by its research, highlighting major new demand for a more sophisticated non-advised proposition.
Jason Hollands, MD of business development and communications at Bestinvest, notes research supporting the launch, showing a third of investors disillusioned with advisers and brokers and another third unable to afford advice.
Hollands notes a rise in online-only tools designed to give information and make the process simpler but sees these as unsupported by qualitative research and constituting little more than decision trees.
“Some provide little more than access to past performance data, which by itself is a poor way to select an investment. Without a helping hand, the new wave of self-directed investors is at real risk of mis-selling to themselves," he adds.
Already established
Tim May, CEO of Apcims says that as the association started life representing stockbrokers and extended to embrace discretionaries, its members have always offered execution only.
“Demand for execution only is clearly there post-RDR and our members are positioned to capitalise if they wish to so we do not see non-advised as a threat,” he says.
As a further wrinkle, May says execution-only remains outside RDR’s commission ban until the end of the year, which could create a further incentive for a surge of business in 2013.
James Calder, head of research at Apcims member firm City Asset Management, says the firm offers execution only – so sees no great threat in its growth – but is not planning to develop this side of the business.
“We run money on a bespoke discretionary basis and some of our larger clients will sometimes want to dabble in markets themselves so we offer execution-only dealing for those trades,” he adds.
“This is only available for existing clients and we are not seeking new execution-only business. For peers with a platform, I can see the sense of adding a non-advised capacity for people left without advice post-RDR. But we cannot see a huge exodus from discretionary management into execution-only, with relationships built around fees already in place.”
RDR II
As the final pieces of the jigsaw start to fall together and we await feedback form the FSA on RDR implementation and its impacts on the industry, the idea of RDR II has already been bandied about.
Execution only services have thus far escaped fairly unscathed from the FSA’s magnifying glass, but questions have started to be asked about the extent of their ‘guidance’ to investors.
Letters ‘strongly recommending’ clients to buy into one fund or another do not stop much short of advice in some people’s opinion.
Exectution only’s position as a threat or opportunity is not yet clear, but maybe it is best to see the lay of the land before jumping feet first into the market.
