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Why Barclays thinks IFAs will survive the RDR …for now

Barclays are the latest analysts to notice the RDR and have made a number of predictions on how 2013 and beyond is going to shape up for advisers.

Barclays are the latest analysts to notice the retail distribution review (RDR) and in particular the impact it’s going to have on asset managers and platforms.

Analysts at Barclays have also made a number of predictions on how 2013 is going to shape up for advisers and the financial services sector as a whole.

First up….advisers

The good news is Barclays does not think there will be a ‘cliff-face reduction in IFA numbers’. But on the flip side RDR will accelerate the pre-existing trend of adviser exits, lead to an increased use of execution-only platforms, greater popularity of passive funds, and heightened margin pressure for product providers.

Why IFA numbers will survive….for now

Barclays said the number will stay up for the next two to three years because of:

  • Trail commission: ‘This income can sustain them [IFAs] for some time, but can create the moral hazard of IFAs encouraging investors to remain in those investments longer than they should,’ the analysts said.
  • Professional standards are not a stumbling block. Most advisers have successful got to level four, and those that want to remain the profession can retake.
  • Smaller IFAs can ‘improve business economics’ by joining networks and advising wealthier clients.
  • Increased outsourcing to discretionary fund managers to ensure independence.

But...

There may not be a cliff edge reduction in the number of IFAs, but there will be a reduction and Barclays suggests this will be for three reasons:

  • Customers ‘baulking’ at the ‘true cost’ of advice
  • Higher standards of professionalism required
  • Raised compliance and legal costs of remaining whole of market.

Here’s how Barclays viewed the adviser/ platform business model before the RDR...

Providers set to win in 2013

Jupiter

Barclays said: ‘We believe Jupiter’s near 80% AUM bias to equities is the best means of participating in the market’s increased risk appetite.

‘£688 million of Q4 net flows brings Jupiter’s full year total to £966 million, a reasonably healthy 4% inflow rate and stronger than 2012 industry average of -2%. Jupiter’s mutual fund inflows for Q4 of £490 million is a decline from last quarter’s £795 million.’

Pictured: Edward Bonham Carter.

Aberdeen

Barclays said: The trends that drove Aberdeen’s outperformance in 2012 of rising revenue margins and strong equity inflows are likely to continue.

Aberdeen reported £1.1 billion group net flows for quarter to December. The flows were overall other areas. Once again, global emerging market inflows were very strong at £1.7 billion out of the £3.1 billion equity total.

Pictured: Martin Gilbert.

Hargreaves Lansdown

Hargreaves Lansdown, in our opinion, is also likely to surprise on the upside on flows, whilst displaying a low degree of revenue margin erosion.

Pictured: Peter Hargreaves.