With the retail distribution review (RDR) now in force, a growing number of wealth managers are looking to attract less wealthy clients through direct offerings, but can they compete with the incumbents?
Estimates of the scale of the ‘advice gap’ vary. Consultancy firm Deloitte believes there are now
5.5 million people who are unable or unwilling to pay for advice.
Jonathan Fry, whose eponymous wealth boutique launched an execution-only service in the summer of 2011, says his firm wanted to offer clients the option to implement their own investment ideas.
However, he believes firms that are launching execution-only to gain a presence in the direct-to-consumer market face a huge challenge.
‘Smaller wealth management firms should be under no illusions as to how difficult it is to make an impact and make money out of execution-only and guided advice,’ Fry said. ‘There are some big players in the market – for example, AXA, Barclays Stockbrokers and TD Waterhouse.
‘These big players have market capability and are investing a significant amount of money in delivering something that is both competitive and functional with well-presented web-based services. Most wealth management firms who focus on personal relationships and face-to-face advice are going to struggle to get near to emulating this.
‘For us, the challenge was we recognised that high net worth clients may wish to implement their own investment ideas on a competitive basis.’
Brian Dennehy, founder of FundExpert, says that for new entrants, trying to compete on price with the likes of Hargreaves Lansdown is ‘frankly pointless’.
‘All of the [businesses] that are coming in want to compete on price,’ he said. ‘Hargreaves Lansdown has already got that corner of the market on scale and no-one else could spend what they need to on sales and marketing to even begin to compete. Anyone else with non-advisory business needs to have a unique selling point.’
The sheer scale of the challenge facing newer entrants is echoed by David Loudon, managing partner at Redmayne-Bentley, which has a long-established execution-only service.
‘Really the only way to move in is probably online and that is very expensive,’ he said. ‘The online businesses are of such a scale, it is a serious business to enter into and there is not much to differentiate between the online ones.
‘If you have no differentiators how are you going to sell it? All you have to choose between is price, and price is not going to help you on an ongoing basis. Redmayne-Bentley offers a personal service; we are not in the online space.’
Charles Stanley is one business that already has both scale and a high street presence, and is also hoping to take advantage of the execution-only opportunity with the upcoming launch of Charles Stanley Direct.
Two weeks ago the firm signalled its commitment to the new division by moving Douglas McNeill over from the institutional side of the business Charles Stanley Securities, to head an equity research team at its direct arm.
With the full service not due for launch until February, some might say Charles Stanley is coming late into the game. Charles Stanley Direct head Robert Hudson is aware of how tough it will be to establish a foothold, but says picking up ‘RDR orphans’ will be part of the firm’s strategy.
‘I think it’s extremely hard to break in,’ he said. ‘We believe there will be further geared growth because clients won’t have access to financial advice. We think that given all the price changes, there might be a reshuffle in people’s views of what they are paying and what they are getting.’
Hudson adds that the already successful players in the self-directing space have been ‘quite specialised’, and that he could ‘only think of one or two [competitors] that really know what they are doing’.
‘I see a lot of “samey” investment platforms just going down the route of bringing trading capabilities without thinking how important it is to take it forward from there,’ he said.
As such, Charles Stanley is also hoping to acquire clients who are already self-directing with another firm. ‘Many have underestimated the importance of client interaction, the quality of your research... There’s lots of activity in the market but we think there’s a lack of appreciation of just how critical it is that you are providing ongoing services to clients,’ said Hudson.