The Dunstan Thomas Adviser and Provider Survey 2013 - Provider Results

27th April 2013

Providers back RDR but risk drowning in administrative changes, finds Dunstan Thomas provider survey

Retirement product providers are split down the middle on whether RDR is having a positive effect on their businesses right now according to a comprehensive survey of providers that was completed last month by retirement solutions provider Dunstan Thomas. Half (50%) said that RDR was already having a positive effect on their company’s bottom-line while the other half said they were unsure or felt it was negatively impacting their sales today.

A third of providers (33%) believe RDR will increase compliance overheads and reduce margins. More positively, nearly a quarter (22%) recognises that RDR will provide much greater transparency around charges to the consumer. A slightly smaller group (15%) believes that longer term these changes will make for a healthier market in which they will thrive.

Nearly a third of providers (31.5%) see disclosure changes associated with aligning Key Features Illustrations (KFIs) with Statutory Money Purchase Illustrations (SMPIs) as the most difficult to implement this year. While disclosure of ‘retention of any interest payments on pension funds held in cash’ is seen as the second toughest new disclosure requirement to implement (by 18.75%). Implementing best practice layout changes on KFIs (in line with CP12/29) was the most difficult change for 12.5%.

Enabling Real Time Information (RTI) was seen as the most costly process change to implement in 2013, according to a qualitative pilot study Dunstan Thomas carried out, while enabling RTI ranked alongside enabling auto-enrolment (AE) in the linked quantitative study of provider views (both RTI and AE projects got 31.25% of the vote). Meeting capital adequacy (CA) requirements emerged as the most costly change this year for a substantial minority of the audience (18.75%). The impact of higher CA requirements on SIPP operators has been well publicised in recent weeks.

The largest group of providers (37.5%) believes that enforcing CA requirements of SIPP operators will be the FCA’s central focus in the retirement market in 2013. A quarter of respondents thought that disclosure associated with SIPP investments, including tighter definition of non-standard assets, was top on the regulator’s to-do list.

Nearly a fifth of providers (19%) felt that the FCA was likely to level its ire on demanding deeper unbundling of investment charges (i.e. investment management, distribution and custodianship charges). A smaller group (12.5%) felt that regulation of Execution Only (XO) offerings would fall under the regulator’s brightest spotlight this year.

When asked what would be their prediction of the most likely trend created by RDR, more than two thirds (68.75%) thought that RDR would prompt an increase in the number of XO platform offerings. Nearly half (44%) thought that it would force an increase of specialisation by IFAs to counter Adviser Charging; while nearly as many (38%) said that it would increase the number of discretionary investment management offerings as investment performance comes increasingly under the microscope and strong growth stories remain rare. Increased transparency is already having an impact on charges according to most providers. Some 41% of providers thought retail investment product providers’ charges were already falling, while nearly a quarter (22.2%) said pension providers are reducing prices and 26% reported fund manager charges falling.

Views around charging are not consistent however: more than a quarter (26%) of providers believe platforms’ annual management charges will rise in 2013 and a third (33%) think that outsourced third party charges will rise. Nevertheless more than a tenth (11%) thinks the increased transparency will drive down charges across the board.

The largest growth opportunity for wrap platforms this year is in SIPPs according to nearly 30% of the sample. Second to this is income drawdown products voted as the biggest opportunity by 22% of providers; while annuities and ETFs received equal billing - voted as the key growth opportunity by 18.5%. Interestingly a comparative study of IFA views found them favouring annuities and ETFs before other on-platform product group opportunities.

Most believed that platforms would continue to grow Assets under Management (AuM) in a healthy way post RDR. A third of providers thought all types of platforms would secure 6-10% growth in AuM this year; while 48% of providers believed 6-10% growth is likely for fully open wrap providers. Turning to politics, nearly a third of providers (29.6%) think the EU has been bad for the UK retirement market. Commentary indicated that ‘gold-plated’ regulation like Solvency II only served to increase costs of providers and reduce margins. Half that number (14.8%) thought the EU was still good for the UK retirement market.

On Auto Enrolment, half of all providers surveyed said AE would lead to improved standards in workplace pension schemes generally. But more than a third (37%) felt that it would lead to falling employer contributions as they ‘level down’ contributions to help manage costs. While 19% (and the largest weighting in the qualitative study) felt AE would force a reduction in pension product charges. Closure of smaller scheme providers was looking likely for 31%, as greater scrutiny exposes them.

The action seen as most effective for reducing the UK pensions crisis is ‘stopping the Government tinkering with the pensions tax regime’ (for 33.3%). Over a quarter believe that the Government needs to increase the state retirement age still further and the same percentage (25.9%) favoured a complete rethink to establish ‘an entirely new savings framework’ not yet tabled.

Linked to this one respondent said: “Pensions funds should be accessible via loan facility. A tax penalty can be imposed for not repaying. The product should be an ISA/Retirement/Insurance-style savings vehicle. You need to have a product that guarantees you will not pay tax at a level above current thresholds, rather than the other way around.”

Others thought that cross-party agreement on pensions needs to be agreed to stop it being raided at will, with policies influenced by the vagaries of politics and the mostly dire state of the public purse.

Chris Read, chief executive, Dunstan Thomas, commented on the findings: “Providers are heavily burdened with the weight of seismic changes like Auto Enrolment and RTI enablement as well as an array of detailed disclosure requirements this year. Yet the changes get a surprisingly good reception given the shake-up that RDR has brought to product distribution. What worried us most about the findings though was that, despite the increased transparency and the introduction of Auto Enrolment, many providers still believe much more needs to be done to incentivise people to build a decent nest egg for retirement.”