Dunstan Thomas survey garners views from over 16,000 IFAs as they prepare for RDR and Wrap Platform Asset Migration Boom
IFAs think the abolition of compulsory annuities will benefit the consumer more than any other major Pension Reform being pushed through this year. 39% of IFAs questioned in last month’s online survey considered this the most beneficial reform while 30% selected auto enrolment as the most beneficial reform for consumers. One in five (20%) said that unbundling of charges would deliver the most benefit.
Over two thirds of IFAs (69%) think the new qualification and training requirements demanded of them by RDR, renders provision of independent financial advice to the mass market quite simply unaffordable.
Increasing transparency around charges is broadly welcomed by IFAs – over three quarters of them (77%) backed full unbundling of charges and 62% gave the thumbs up to clear communication of the impact of charges on performance or Reduction in Yield as it is sometimes called.
But understandably IFAs are divided on the merits of banning commission payments – over two thirds (68%) remain against this move; while 72% stated that the FSA’s judgement that selecting only one wrap platform for the transfer of assets of the majority of clients will have a’ negative impact’ for clients.
They also think that the FSA’s tight definitions of Independent and Restricted advice is not the way to go – 72% thought the FSA had got these definitions wrong.
The audience was virtually split down the middle by some of the other disclosure related changes: 44% said that banning of cash rebates from providers to advisers was the right move while 47% said banning of cash rebates from fund managers to platforms (now widely expected by the industry) was a good move.
Three quarters of the sample intend to remain whole of market IFAs after RDR despite the increasing demands being placed on them; while nearly half (43%) think that 16-25% of IFAs will cease trading because of the new demands placed on them by RDR and 20% think 26-40% of IFAs will disappear.
Despite the pressures imposed by RDR the single largest financial pressure being placed on IFAs this year is actually coming from rising levies being exacted by the Financial Services Compensation Scheme to compensate clients for assets lost as a result of an increasing number of investment firms that are failing – 39% put this issue as the largest drain on their coffers in 2011, whereas 24% cited RDR preparations as the most costly area this year. Transitioning from commission to fee-based advice was the largest financial pressure for 22% of firms questioned.
But it is not all gloom and doom so where are IFAs seeing growth this year? Asset Migration onto wrap platforms is seen as the key growth strategy for 16% of firms while 12% see ‘deepening our expertise in a particular area of the market’ as the route to growth. A slightly smaller number (11%) are outsourcing more aspects of what they do to specialists (e.g. Discretionary Fund Managers) to find efficiencies. 10% are acquiring new business by buying other IFA firms as the consolidation trend picks up pace.
The most significant criteria for wrap platform selection was range of funds and fund managers on offer (with a weighting of 77), closely followed by service levels (69) and unbundling of charges capability (45).
In terms of specific functionality ‘Good selection of risk profiling, planning and rebalancing tools’ was voted the most important factor in wrap selection by 30% of respondents. Online transacting capability was the second most important functional requirement (25%); while strong integration with ‘our existing Front Office and desktop systems’ came in third (16%).
Wrap asset migration speed and progress is also worthy of exploration and the figures show some acceleration in asset migration activity:
• 15% have moved 11-20% of customer assets under management onto wraps already.
• 9% have moved 21-30%
• 15% have moved 31-40%
• 10% have completed 41-50%
• A further 10% have completed 51-60%
But if you ask what percentage of assets they expect to have moved at the end of the migration process the figures are much higher:
• Nearly a third (29%) will move more than 70% of assets
• 16% will move 61-70%
• 13% will move 51-60%
The majority of IFAs expect a near tripling of the total Assets Under Management (AUM) on platform within the next 18 months: 37% predicted £300bn of AUM will be on platform by the end of 2012, up from £120bn today. An even higher number (40%) predict a doubling of AUM over the next 18 months to reach £200bn which is significant in itself.
And those assets won’t just be in investment funds and cash, 62% of IFAs think a range of annuities should be offered on platforms and would purchase this way if it was available. Over half of the sample (52%) thinks that the value of the annuity market will stay the same as it is today or grow despite the advent of the abolition of compulsory purchase of annuities at age 75.
Over half of IFAs (51%) said that wrap platforms need to get better at enabling quick and easy re-registration of assets between platforms. Re-registration capabilities are required by the RDR deadline of 31st December 2012 and the technology is already there to deliver it. Considerable industry pressure demanding this capability has led most platforms to prioritise this capability in recent months.
Chris Read, chairman, Dunstan Thomas, commented on the findings:
“This is the most comprehensive snapshot we have ever commissioned into the views of the bulk of the IFA market. It gives us a great insight into a market which is changing fairly rapidly as hundreds of billions of pounds of assets move from legacy policies onto wrap platforms.
“We also see the consolidation trend accelerating, while those looking for growth are deepening expertise and using technology and specialist outsourced service providers to serve customers more efficiently and proactively. Although RDR looks tough for IFAs right now, it is already driving many firms to plan how they can serve more customers better and transform their businesses by so doing.”
Dunstan Thomas commissioned Agility PR to fulfil the above survey of 16,340 IFAs. Agility PR sent questionnaires via an online survey provider and obtained a total of 127 fully completed questionnaires within a two week period between 21st April and 5th May 2011. This equates to a response rate of 0.76%.
