David Ferguson: Transparency is not confusing

Nucleus Financial chief executive David Ferguson muscles into a debate with the ‘big three’ about platform pricing.

After a wee period of deliberation, the legacy fund supermarkets have come out fighting against the FSA’s highly progressive DP10/2 proposals. Although a lot of the language has been centred around bundled/unbundled terminology the real point of contention is transparency and whether or not the various market participants are commited to this concept.

For various reasons, I spent some time with all three major IFA fund supermarkets last week and there seems to be a commitment to the word transparency but rather less to the execution.

In fact, if one has been digesting the press comment, it seems the so-called and self-proclaimed ‘big three’ believe the greater transparency proposed by the FSA can only lead to operational complexity, greater consumer confusion and perhaps most bizarrely of all, higher charges for customers.

Bundled or unbundled?

There are, of course, instances where a bundled platform will prove cheaper to the customer than an unbundled solution but the converse is actually true.

When it was pointed out to two of the bundled platforms that the average asset management charge on Nucleus is 51bp (I daresay Transact, Novia, Ascentric and so on would claim likewise) their stance shifted and appeared to become less certain.

Similarly I don’t see how transparency can naturally lead to confusion. In fact, I would imagine the opposite to be true. Even where the client is not interested in the individual costs of advice, the platform and the asset management, the adviser most certainly should be because for as long as platforms offer a choice of assets driven entirely by their own revenue model the IFA’s own proposition (and therefore the advice received by the client) will be constrained by the interests of the platform’s shareholders. And that just doesn’t seem right to me. Or at least not if it is not fully disclosed.

A solution to the crisis

This industry has staggered from one crisis to another over the last 20 years or so and there is no other single thing that might improve matters than the introduction of true transparency.

While the many and varied dinosaurs may question this analysis, none of them seems able to answer the simple question: name one industry in which customers became subjected to a poorer deal following the introduction of greater transparency?

For the record, I have no issue whatsoever with a scenario in which XYZ fund managers offers a fund supermarket better terms on the basis of scale, but what I think IFAs should demand is transparency around these terms.

After all these platforms are simply using clients’ money to negotiate better terms for themselves, which in turn will help drive their own profitability.

Talking of profitability, Nucleus posted its first profitable month in April, our 40th month of trading.

With assets under administration of just over £1.5bn we may dip in and out of the red for a few months as we reinvest to accelerate our growth and make the most of the once-in-a-lifetime opportunity presented by industry modernisation.

Nevertheless, we are all very proud of the achievement and I can only thank everyone who has made a contribution to ensuring Nucleus is here to stay and to helping us drive the
positive change this industry needs to undergo if it is ever to build long-term sustained trust with the investing public.

Better selection

The explicit disclosure of charges for fund management, platform, product wrapper and adviser will lead both clients and advisers to be more selective. We would expect platform charges to fall over time and fund manager charges to fall as advisers and clients demand the best prices relative to other providers, and platforms demand the lowest prices being offered in the market.

Re-registration will become a standardised process and then automated resulting in lower costs for platforms and investors who wish to re-register. The simplified process will in turn drive further competition between platforms. Good news.

In our view, the proposals in DP 10/2 are a breath of fresh air and bring much needed clarity to how platforms operate. We do not agree with some market views that customer savings will be detrimentally impacted.

Both direct propositions and group workplace offerings will emerge to replace and exceed existing volumes.