Brewin Dolphin will face the biggest hit in the private client sector when the introduction of the retail distribution review (RDR) comes in and removes trail commission revenue.
Stuart Duncan, a financials analyst at Peel Hunt, said the phasing out of trail will see Brewin Dolphin lose £28 million in revenue over the next couple of years.
However, rather than hurting the firm, Duncan believes in the short-term Brewins is likely to benefit from its new direct charging structure.
‘In effect the new fee charge will be implemented this year although they will still collect the trail,’ said Duncan. ‘In effect, in the short term, there will be an element of double counting until the trail reduces.’
Brewin, headed by Jamie Matheson (pictured), was unable to comment, being in a close period, but while it admits the loss of trail will have an impact on revenues, it disputes the £28 million figure.
‘The difference with Rathbones is they always had a choice to buy institutional units – and they’ve never received trail commission,’ said Duncan.
‘With Brooks Macdonald – there’s a very small amount they get trail commission on,’ he added. ‘The acquisition they have just made, Spearpoint, includes trail commission of £8,000. Younger businesses like Brooks Macdonald are less reliant on trail.’
However, aside from the financial impact, Duncan emphasised the new level of price transparency will be enhanced and will render the firms’ propositions even more attractive.
‘Price transparency makes the service they offer more attractive to private clients, especially versus independent advisers,’ said Duncan. ‘For example, you have a personalised service and pay 1%, but for an IFA, you can end up paying 2%-3%.’
On the fund group side, Jupiter Fund Management will be the most affected by the RDR, according to Duncan, as the firm has the highest percentage of retail clients.
‘Schroders will also be impacted because they have a big retail base,’ said Duncan. ‘But they also have a big institutional business, so the effect is not as pronounced. And they are less reliant on the UK than Jupiter.’
He added Liontrust will be affected, as it has a more retail-focused business, as will Henderson, due to the large legacy business the firm acquired via Gartmore.
Robin Stoakley, head of UK intermediary at Schroders, said the removal of trail commission is actually revenue neutral for the firm.
‘We went to clean-fees for some; others we are paying rebates. As a consequence of the RDR, we are expecting to see pressure on total costs, all of the value chain will be squeezed.’
He said the part of the RDR that is costing a significant amount is the launching of new share classes and fund ranges. ‘You’re talking six figures, annualised,’ he said of the cost.
‘One of the consequences of the RDR is there will be more [money] channelled through discretionary managers, rather than advisers directly,’ said Stoakley.
‘Expect to see, over the next few years, more consolidation in the platforms and asset management industry as a result of costs going up and margins coming down, and increasingly seeing assets channelled to a smaller number of funds,’ he added.
‘We do expect to see more execution-only investors buying funds under guidance rather than advice – for example, via Hargreaves Lansdown and Chelsea Financial Services – rather than more ‘direct to clients’ business.’
All down to the buyer
Stewart Cazier, head of product at Henderson Global Investors, said trail commission is one of the least important factors of RDR for the firm. ‘There’s no dramatic impact on our revenues or margins from the new share classes,’ he said.
‘The biggest issue in terms of what’s going on is whether clients will continue to buy the same products that they were,’ Cazier added.
‘What’s likely to be the case is no one will be excitable about paying more or less for an actively managed UK fund – it’s whether you should buy the UK fund, or a tracker.
‘So there will be pricing pressure over which products are going to be bought rather than whether they have clean prices.’
In terms of the switch from commission to fees, it will be a big issue for platforms, said Cazier, adding it is the single most costly systems item.
‘The biggest issue as an asset manager is the massive amount of time and effort in preparing for RDR – it’s a massive divergence of energy.’