Independent financial advisors (IFAs) – who already control 44 per cent of retail-sourced assets in Britain’s 230 billion authorized fund marketplace – will see their marketshare rise above 50 per cent by 2006, according to fund consultants Cerulli Associates. This will happen even if the UK government’s “de-polarization” initiatives – in which distributors will no longer be obliged to sell all products or none – are fully implemented next year, predicts Cerulli.
Cerulli will release its most recent research into the UK retail fund management industry – thesioxth largest in the world in U.S. dollar terms -during a series of Round Tables scheduled to take place in London on 9 and 10 September. Research conclusions will also appear in Cerulli’s monthly research notes publication, the Cerulli EdgeT-Global Edition, and in the British section of the firm’s new research product, CA Global UpdateT.
Cerulli notes that UK regulators are examining ways to end the nation’s polarization regime, which prohibits distributors selling proprietary funds from simultaneously offering any third-party products. The firm speculates that de-polarization will probably happen in late 2003. “De-polarization could create a new set of advisors called multi-tied distributors, provide third-party products to advisors currently tied to single-product vendors, permit manufacturers to own larger stakes in IFA networks and push independent financial advisors towards fee-based business models,” says Cerulli.
“When the market finally depolarizes, a raft of tied advisers will become multi-tied distributors to capitalize on the ability to offer a wider range of product. At the same time, scores of independent financial advisors not ready to adopt fee-based models will migrate their business towards the multi-distributor model: one that essentially permits them to maintain the key relationships they have (usually IFAs work with five or six providers) and still keep a commission-based business model.”
Cerulli also believes that many multi-tied advisers will use multi-manager fund solutions as they service the mid-retail market. But the analysts say IFAs-already having benefited from their ability to offer open architecture in a polarized world – are likely to further expand their marketshare of collective scheme assets despite a likely reduction in headcount. Cerulli argues that IFAs will compete effectively for wealthier clients who have more complicated advisory needs – and a higher demand for objective opinion-than the mass-retail investors that banks and former tied agents will likely target. IFAs will therefore continue to gather larger net inflows from more affluent clients, and will see their marketshare of retail fund assets rise accordingly and primarily at the expense of tied agents and multi-tied distributors, who will fail to grow as quickly.
Cerulli expects the British authorized fund marketplace to expand slightly more slowly than European norms, at about 12 per cent compounded annually between now and year-end 2006, resulting in a 416 billion fund industry.