These are big moves, and these new regulations are forcing two trends as we see it. The first is a reduction in costs at the product end, and if you look back at the UK market, there has been a rise in low-cost adviser platforms over the past 12 years, from approximately £6bn ($8.68bn) assets under management in 2004 to around £300bn in 2016.
Internationally, we expect to see a growth in the platform market, but it will be much slower than in the UK. From an adviser perspective we expect to see them moving away from upfront fees and starting to integrate retrocession and adviser fees into their business models.
The second trend we expect to see is IFAs working more closely with multi-asset managers and DFMs such as GAM. It is becoming increasingly risky for IFAs to pick funds for clients, and this risk has been highlighted by the Securities and Futures Commission’s decision last month to allow clients to sue their adviser for poor advice.
If you look at the UK, where a similar rule applies, only about 30% of advisers now pick funds for clients. The rest outsource to model portfolio providers, to DFMs or to multi-asset fund providers.
We are seeing this trend in the international world as well, and we are starting to link up with like-minded IFAs in a number of markets. We are not in a position where we can work with everyone as our team is relatively small. What we are looking to do is work very closely with two or three partners in each market. We make sure we have regular contact with them and that they have a direct relationship with our portfolio management team.
We also run regular webcasts, can facilitate co-branding of certain client-friendly reporting documents and, most importantly, we offer the bespoke valuations that I touched on earlier – the personalised collective account – which has proved so popular in the market.
For some of the IFAs we are having a conversation with they are looking to completely outsource their investment proposition to a fund manager such as GAM. Other IFAs are running a core and satellite approach where the core holding would be a multi-asset fund and the satellite would be a selection of single strategy funds.
At the moment, the main focus for us in the international advisory market is the multi-asset offering. However, we are seeing interest in a number of single strategy funds GAM offers, especially in the UK.
Which single strategy funds are they?
Our main investment concern, in common with many other asset managers, is what will happen to the bond markets as interest rates start to rise internationally.
As well as the multi-asset proposition, we are also seeing interest in bond replacement vehicles. Two popular strategies are the GAM credit opportunities strategy and a GAM mortgage-backed security strategy. Both of these are popular with the private banks and large pension funds, and we are also seeing interest from the IFA market.
Did you sign any big deals last year and what are your plans for 2016 on that front?
Working with life companies internationally, and platforms in the UK, is vital to our success in the advisory market. Because of this we have appointed Emma Howard as our dedicated point of contact for platforms and insurers. Emma is based in London.
Our multi-asset strategies are available through the following international insurers: Friends Provident, Generali, Hansard, Investors Trust, Old Mutual, RL360° and SEB. We are also seeing a rise in the platform space internationally, with the likes of iFAST, Navigator, Moventum, Novia and Praemium all active in this market.
Where do you see the positioning of platforms versus the more traditional insurance company platforms going forward?
The platforms certainly have a place in the international markets. However, the issue some are having is where they can be sold. For instance, in the EU, most advisers have insurance licences so will fall under IDD and not Mifid II. This means the advisers will not be able to market the platforms directly unless they change their licence – or use them through a licensed insurer.
Platforms are certainly here to stay but it may take longer than some expected. I would say it will be 2018 before they make a significant impact internationally.
Breaking that down into regional jurisdictions, is there a pattern there?
If you look at Asia, the two main platforms – iFAST and Navigator – do not have a lot of competition at the moment. However, with the new regulations in Hong Kong and Singapore, I would expect more platforms to target those markets.
In South Africa platforms are already making an impact and will continue to do so. The EU will take time due to the licensing issues highlighted earlier. While in the UAE, the market is dominated by the insurers, which is likely to continue for some time.
Where is GAM in terms of growth of assets and where do you want to be?
GAM has more than $122bn under management with six investment centres across the world. The majority of our assets under management have traditionally come from private banks and large pension funds.
Over the past three years we have put a great deal of resource into the advisory side of the business, and this is growing well.
Our chief executive officer Alex Friedman, who previously oversaw UBS’ global wealth business as chief investment officer, is committed to growing the multi-asset business, and Larry Hatheway, ex chief economist at UBS Investment Bank, leads this business. We are delighted to have him on board. Our multi-asset business today stands at approximately $12bn, and we expect it to grow steadily over the next five years.
Finally, given this is our 10th anniversary issue, what do you think will change in the financial services industry over the next decade?
The two key trends are the ones I spoke about earlier, which are only just getting started. I also expect to see a rise in technology enabled solutions from asset managers, insurers and platform providers. LW
