This was one of the themes that came out of a panel discussion on the big topics on advisers’ minds streamed live from the Cofunds conference in Harrowgate.
Cofunds CEO, David Hobbs said: “While there is still a significant amount of work to get through to meet the changes demanded in 2016, I do think we will see less regulatory change than we have done in the past few years.”
This view was backed up by Simon Pistell, managing director at Legal & General Investments, who said: “I think regulatory change is probably going to abate in the next few years; we are ahead of a lot of EU countries in terms of RDR. If the outcomes are directionally right, then we are in for a period of regulatory certainty going forward.”
But, while members of the panel were fairly upbeat about the prospects for the sector, the questions that came in from the audience are an indication of just how much more work needs to be done, particularly on price and simplicity.
Pricing
Asked about the price cuts recently seen within the passive space and what their views are of the likelihood of further cuts, the panel was largely unanimous in its view that such cuts were likely, but were quick to point out that price should not be the only focal point.
Peter Westaway, chief European economist at Vanguard Asset Management said that at a big picture level, the price cuts by Fidelity is great for the industry, but he cautions that it is important to dig into the details of any new offering because it might not be available to everyone.
James Rainbow, head of UK institution and strategic accounts at Schroders said: “There are indications we are likely to continue to see a move away from annual management fees and toward ongoing charges. We are certainly seeing some pricing pressure and we expect to see prices continue to come down our own included.”
Simplicity
Hobbs agreed the increased competition in the space is likely to see further reductions in price, but warned that it takes time for the competitive model to work through the system. And, he added: “You need to think about more than just price, you need to look at the whole service you are getting, performance, price, platform.”
“What the sector is missing is simplicity, there is now a good level of competition, an ever-increasing amount of choice, improved regulation; the trick now is going to be improving the simplicity for clients,” he told Portfolio Adviser after the event.
For Richard Whitehall, senior investment research analyst at Morningstar OBSR, while pricing is important, the other thing that is lacking is investor education. “The sector needs to make sure investors are aware of risk and understand it better than they do at the moment,” he said
He added that, particularly at retirement, while a short term income target may be perfectly fine for a client, increasingly it is important to focus not only on the moment of retirement but also the longevity of their investments.
“People are living longer and the balance between income and capital growth is going to be crucial.”
Westaway agrees that this will be a significant theme going forward: “There is likely to be an increasing move away from products that provide a specific income at retirement toward products that generate income through retirement.”
Given these shifts, Richard Romer Lee, managing director at Square Mile Research, who moderated the panel told Portfolio Adviser after the event, many advisers are turning to managed funds and discretionary fund managers and using risk-weighted portfolios to ensure they provide clients with the best offering they can.
“There are a myriad of people competing for the same pound now he said. And, as an adviser it should be common sense that you are doing enough due diligence to make sure you are getting the best for your clients,” he said.
