David Prosser on the announcement that Fidelity FundsNetwork will be adding more investment companies.
The old saying, “if we build it, they will come”, has an obvious flipside – if you don’t, they won’t. It might be worth mentioning this to those fund platforms that continue to deny advisers and investors access to investment companies, limiting their offer instead to open-ended vehicles.
The argument from those who run these platforms is that the demand for investment companies isn’t sufficient to justify the resources required to put systems in place to offer them. But it’s difficult to gauge the level of demand for a product that you don’t actually sell.
This debate is once again to the fore following the announcement this month by Fidelity FundsNetwork that it is adding a much greater choice of investment companies to its platform – around 50 additional funds from a range of different providers. The move adds to the pressure on those platforms that don’t currently offer much investment company choice – particularly Old Mutual Wealth and Cofunds.
The Association of Investment Companies’ own data rather gives the lie to the idea that there isn’t much demand for investment companies on platforms. Its figures show that sales of closed-ended funds to financial advisers via platforms have tripled to £600m a year since the retail distribution review (RDR) of two years ago.
That reflects a change of gear in the adviser community, with many intermediaries increasingly keen to offer clients a broader range of investment solutions. For example, exchange traded product provider Source has just published research showing that 82 per cent of advisers think exchange traded funds should be much more widely available on the platforms they use.
For the platforms, these challenges are often as much about finding the right technical solutions to new product provision as the products themselves. But as Mark Polson, the boss of The Lang Cat consultancy rightly pointed out in FT Adviser this week, platforms that don’t respond to demand, particularly from advisers, will find themselves squeezed out. “Continued survival will be driven by the scale of demand, rather than attributes of supply,” Polson told the paper.
For the investment company sector, the great appeal of RDR was the opportunity to compete on a level playing field with open-ended funds, with the inability of closed-ended vehicles to pay commissions to advisers no longer a hindrance. However, the playing field remains uneven if advisers are denied access to investment companies via the platforms they routinely use to invest client money.
The increased take-up of investment companies generally by advisers suggests that far from seeing closed-ended funds as “esoteric” – as one platform boss recently dubbed the industry – they are attracted to the sector’s low charges, strong performance track record and, in particular, its pedigree in delivering consistent and increasing income payments.
None of those attributes are becoming any less appealing – and advisers who want to take advantage of them need to start making more of a fuss about platforms that aren’t moving quickly enough. The example of Fidelity FundsNetwork (and others that resolved this issue some time ago) proves the issues with offering investment companies via platforms are not insurmountable.