D2C platform growth looks like one great upside from RDR

27 June 2013

The Direct to Consumer (D2C) platform market has been growing rapidly alongside the adviser wrap platform market in the run up to RDR and into 2013. Assets under administration on D2C platforms increased 29% from £73.2bn to £94.2bn in the year to 31 September 2012 and Platforum predicts a doubling of AUM by the end of 2014 to £180bn.

Nearly two thirds of all D2C assets go to the top six players which are in order of size: Hargreaves Landsdown, Barclays, Fidelity, TD Direct, Selftrade and Alliance Trust. A number of white labelling partnership arrangements with these players have bolstered their positions of strength.

For example Informed Choice announced that is working with Fidelity FundsNetwork to provide support for its D2C platform IC Direct. Interestingly, wrap platform provider Ascentric is about to unveil a ‘B2B2C’ white labelling offering to enable distributors to bring their own D2C platforms to market quicker and cheaper.

Ascentric’s B2B2C Propositions Manager, Kate Bowler sees it like this: “We have proven capability in transacting a range of products and looking after client money for IFAs. We will provide the technology platform to enable distributors to get to market quickly with a fully functioning transactional D2C platform offering a general investment account, SIPPs, ISAs and model portfolios. While the underlying platform is the same for advised and non-advised trading we’ve developed a consumer interface for D2C which ensures that IFAs’ customers can transact independently without guidance or advice.” Bowler also makes it clear that she sees real interest, from the adviser community, in retaining a link with the customer even when they are choosing to buy financial products which frankly do not require financial advice. “This is not necessarily about pushing those that cannot afford financial advice onto their D2C platform but also offering all their customers, even the high net worth ones, the choice to buy a block of BP shares or an ISA via their lower-charging D2C platform. They retain the relationship through this purchase. In the future it will also be possible for them to have that all-important single customer view of all customer assets, both the advised and non-advised ones,” adds Bowler.

Bowler also highlights the potential of optimising web traffic to D2C platforms in order to accelerate client bank growth through digital marketing techniques such as Pay Per Click Google campaigns.

When analysing D2C platforms it’s always worthwhile looking at its place of origin as this determines its strengths and positioning in the market. IC Direct comes from wealth management group Informed Choice. This firm is run by MD Martin Bamford who is an award-winning blogger in his own right. No surprise then that IC Direct’s user experience reflects the very latest website design and social media thinking and it looks bang up to the minute. It offers lots of avenues to news and analysis content, education, hot tips and best buys. It even offers guest blogs by specialist asset managers. The emphasis is on fresh and dynamic content. It offers all the elements which would make Search Engine Optimisation specialists slather. It is clear that IC Direct is trying to attract and hold a specific type of web-savvy DIY investor. Many of these investors may well be informed by what they read on the site. The idea of this platform’s users gaining a better understanding and more control over their savings and investment portfolio seems compelling. A D2C platform might be seen as the place where a financial rethink starts. Information gathered will uncover investment choices which may require validation by an adviser. The great thing is that throughout all of this the relationship with that customer is maintained and value is built.

So the social and digital media revolution has played a part in the growth of D2C platforms. But we also know regulation in the shape of RDR is an even bigger growth driver. One of the first things IFA firms had to do in preparation for RDR was segment their customer-base. This process inevitably uncovered a large group of semi-engaged or inactive customers, many of whom had bought one regulated product such as a pension off an adviser years ago and then shopped elsewhere for other financial products or simply stopped buying. What better way to re-engage this audience than by offering them a whole new web-based experience which might, in the best case scenario, bring them back to ongoing financial advice; but would anyway be able to serve them in a relatively low cost and light touch manner online?

RDR also forced greater transparency around charges. Adviser Charging has naturally widened the ‘advice gap’. Post-RDR many more people feel they cannot afford, or choose not to pay for, financial advice now they know how much it is really costing them. Some which are unwilling or unable to pay for financial advice will naturally be drawn to D2C platforms. Many under 30 year olds today will never have encountered an IFA or gone into their local bank branch to buy an investment product. Platforum estimates that some three million UK investors already self-serve online today and many of the other 7.8m active UK investors are likely to dip in and out of financial advice, buying some financial products independently online. Where better place to park assets and watch market movements than in a D2C platform, for all those that are not in a ‘retained’ relationship with an adviser?

Looking at the positioning of a top six D2C player Alliance Trust Savings i.nvest platform service provides another angle. Alliance Trust Savings proposition is resolutely playing to the group’s strength as a product administrator. They are careful not to step on the adviser’s toes if any users of their platform declare they have an adviser. Indeed they gather this information from new clients upfront and if customers declare they have an adviser they do not get sent any material that has produced for the D2C market. There is an emphasis on total security of personal information and provision of accurate regulatory documentation like KFIs around product transactions. Alliance Trust Savings provides low, fixed rate charges product type by product type (charging £162 per year to administer a SIPP on platform regardless of the size of the pot). It sees strong growth prospects from both advised and direct markets. They already offer equities funds, ETFs, ETCs, Investment Trusts from an asset class perspective and are open to widening this range further in the future.

Brian Davidson, Platform Proposition Manager, Alliance Trust Savings, said: “We were one of the first platforms to trade clean share class funds to both advised and direct markets. We were able to do this because pre-RDR we always passed fund manager rebates straight to the customer and have supported advised business by supporting adviser charging. Understandably when the rebates were banned we welcomed the levelling of the playing field and the increased transparency it gave our customers. It is what Alliance Trust Savings is all about.”

Brand is also clearly a key factor in D2C platform selection. D2C users want the reassurance of brand when purchasing. They do not want to spend too much time educating themselves and analysing the market before plunging into investment decisions. The statistics prove this: some 70% of funds go to short-lists, multi-manager funds and model portfolios.

Alliance Trust reports that its top selling funds tend to be the low charging tracker funds from the likes of Vanguard, particularly those heavily exposed to equity gains which have been strong in recent months. Users indicate that they have not got a lot of time on their hands. They want to get on, select a blue chip fund or share, and then get off.

The importance of brand appears to create a big opportunity for the major life assurers and banks to set up D2C platform offerings. However decision-making is not easy as many life assurers have trumpeted heavy commitments to wrap platforms and advisers. Where does this leave their D2C strategies? How do they keep advisers happy while tapping into the growing market of self-servers or part self-servers?

Clean fund prices (fund rebates is now confirmed to be banned across all platforms anyway); modern investment tools; as well as low and explicit platform charges, begin to emerge as winning ingredients for D2C platforms. In summary, the growth of D2C platforms is driven by a complex series of developments. Chief amongst these are the maturity of technology behind wrap platforms which makes it relatively cost effective to set up D2C platforms today. The digital media revolution and RDR have also played their part. What is clear is that we are likely to see more digital-savvy IFA firms unveiling their own D2C platforms over the next couple of years. These firms will be able to use a combination of digital marketing techniques, robust platform technology, great online content and a widening array of products and funds offering enticingly low charges. With all this happening, Platforum’s estimation of a doubling of assets on D2C platforms in the next two years may even prove conservative.

Dunstan Thomas has recently launched its D2C Platform Proposition which is designed to support providers that want to engage clients but also know they need to have a robust disclosure regime and data infrastructure in place to avoid breaching regulatory requirements. D2C propositions need to accommodate a non-advice customer’s need for simplicity, clarity and guidance when selecting and reviewing investment products online.