D2C Platform asset growth prospects look rosy but how do you manage the compliance risks?

24th May 2013

The Direct to Consumer (D2C) Platform market is clearly seeing strong growth in assets under administration and Platforum’s latest Direct Guide (Issue 3) must be essential reading for the big players in the market: http://theplatforum.com/files/Direct_Guide_3_Preview.pdf). Platforum has kindly given us some of the top line findings in recent weeks. We know that D2C platforms’ Assets under Administration (AUM) increased by 29% from £73.2bn to £94.2.bn and there is every reason to think the rising trajectory is accelerating: http://www.moneymarketing.co.uk/wrap-and-technology/the-platforum-tips-life-companies-for-d2c-platform-move/1064960.article  

We have picked up a number of key trends in our research into the space as we ourselves have elected to bring a D2C Platform Proposition to market. But more about this later... first let’s look at what’s happening which is likely to push more assets into D2C platforms over the next couple of years:

  1. The advice gap is opening up post-RDR: We are told that a large number of customers that would have had financial advice in the old commission regime will feel they cannot afford it, or don’t want to pay for it, now they have it in black and white how much they are paying for that advice.
  2. Having analysed and segmented their customers pre-RDR, adviser firms now know they have a group of customers that are inactive or semi-engaged. This group may be ripe for offering the IFA firm’s new D2C offering to. In this way they have a good chance of retaining these client relationships and generating a modest income stream from them without trying to hard sell them financial advice which they are likely to be unable or unwilling to pay.
  3. An IFA-run D2C platform could also provide a valuable service to high net worth individuals who probably don’t need expensive financial advice if they are buying a relatively simple investment like an ISA or a block of FTSE-100 company shares.
  4. The D2C platform, judging by the digital and social media-savvy look and feel of sites like IC Direct, could also be compelling for a younger generation of UK investors that may not have a financial adviser and are not inclined to walk into their local bank branch to buy an investment product - they already buy nearly everything online already so why not investment products also?

Such is the clear value of D2C platforms that wrap platform providers like Ascentric are rolling out B2B2C propositions to their adviser communities to enable them to build their own white labelled D2C platforms fast, powered by Ascentric’s administration capabilities and technology platform infrastructure. In this way the barriers to market for new D2C platforms are falling fast. So are there any pitfalls which could hold D2C asset migration growth back? We think that the key challenge for D2C platform providers is accommodating a non-advice customer’s need for simplicity, speed, clarity and light-touch guidance when selecting and buying investments online; while simultaneously surrounding this customer with a protective shell of a robust disclosure regime and data reporting infrastructure to avoid breaching regulatory requirements.

Marrying these two competing demands is where we are focusing our energies working with D2C platform builders right now. Some wealth managers are definitely not getting it right yet: http://www.reuters.com/article/2013/05/23/us-britain-fca-jpmorgan-idUSBRE94M0DT20130523