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THE TOP CLASS WEDNESDAY UPDATE SAYS WE CAN REBUILD IT

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I’m back, after two weeks of – well, nothing, really. The first week I wasn’t even on holiday but Mike kindly stepped in to give me a break from Updates. Last week I was on holiday but it was rubbish, and now it’s thirteen degrees and chucking it down in Edinburgh and this time last year I was having a month off in France and frankly I’m not in the best mood.

I find spreading a bad mood around is the best path out of it, so hopefully that’s depressed you a bit. It’s all part of the service here at Mark’s Institute Of Non-Shiny Business Communications. If you’d like us to depress your clients, give me a shout. Or not, whatever you can be bothered with, really.

It’s not all depressing, though. We’ve got a new paper out, and I think it’s quite an interesting one, so let’s have a little think about the issues in it. It’s called Better. Faster. Stronger. How Do We Rebuild CIPs From Here? (link opens online flipbook) and it’s free thanks to the living legends at Intelliflo who sponsored it.

If you’re going to suggest that you can rebuild something, then it follows it sort of needs rebuilding. Most firms won’t hold their hands up to say that there’s anything wrong with their CIP – avians and winter festivals and all that – and in fact most risk-banded portfolios behave roughly as you’d expect (though that isn’t necessarily how clients may expect mid to low risk portfolios in particular to behave).

But when you dig into the construction and the grind of running these things on a day to day basis, the story is a little more nuanced. We researched 110 firms for this paper, and while a third or so are all good with everything, there’s lots of evidence of folk finding that the time suck of research, construction, MiFID II costs and charges disclosure, client permissions, rebalancing and all the rest of it is a royal pain in the Ronson and is keeping them away from more interesting stuff like playing Resident Evil 3, making sourdough or financial planning.

So there’s some stuff to go at here. Outsourcing is an answer for some, but the more folk you invite to the party the more folk want fed and watered, and the costs creep up. That’s what’s behind fully loaded CIPs (including DFM, adviser and platform charges plus OCFs) sneaking up well above 1.5% and bursting clear through 2% in lots of circumstances. Passives clearly help bring that cost down, but not everyone is on that bus.

THE CIP CONUNDRUM

So this is the CIP conundrum. They’re time-consuming to run, which obviously does make them expensive, but most firms manage that within their existing headcount. It’s the opportunity cost that’s more insidious. And if you try to get round that, the explicit cost starts to creep up. This is despite the fact that it’s 2020, and we should be able to do this stuff pretty efficiently by now.

It all adds up to a landscape that’s ripe for a bit of ripping up and starting again, as Edwyn Collins so memorably sang once. So we spend the second half of Better. Faster. Stronger. looking at what disruption is possible and where we might see it. The TL;DR is that we’ll see some fun stuff happening in the platform and DFM MPS side of things, but that these will have a relatively limited impact on both the sector as a whole and the TCO that investors pay.

The more profound changes which will make a real difference – massive efficiency gains and cost reductions for the two most expensive parts of the chain – are further out. Advisers are charging an average of 0.81% ongoing, and average OCFs for non-passive portfolios range from a bit above 0.5% up to nearly 1% before transaction costs. If something is going to transform this space it needs to deliver those gains which make it economic for both advisers and fund managers to ship their goods for maybe half of what they charge now. It’s a big challenge, but that’s what this sector thrives on.

Anyway, have a read if you fancy, and let me know what you think. If you’re in a bad mood, having a poke at it will probably cheer you up a bit. I’ll also be talking about the report on this week’s HomeGames with Nick Eatock of Intelliflo as my guest – you can watch that here at 12.30pm or here later.

SIX MILLION LINKS

  • Sorry, it’s a bit lang cat-centric this week. But we’re very proud of our big new update to Platform Analyser, which is big enough for us to call it version 1.1. There’s a whole new bespoke pricing engine in there, which lets you specify your own scenarios and include special deals you’ve negotiated, and to carry those through your due diligence analysis. Definitely worth a look.
  • And it’s the final call for you to rate your platforms this quarter. Takes just a few minutes and we’ll send you a lovely wee summary of the results. It’s a huge thing for us and we really depend on you all to make it happen. Much appreciation if you can find a few minutes to help.
  • Much less lang cat-centric – excellent piece from Brother Bentley on value assessments here.
  • And your music choice this week? I know you’ve been starved of metal for the last couple of weeks, but having invoked the Mighty Collins above, I think we can’t do better than Orange Juice and Rip It Up – hope you agree.

 

 

Stay happy

Mark

 

Posted in: #Top Class Wednesday Update  

About Mark Polson

lang cat founder and boss. Expert on all things platforms, pensions and investments. Prolific writer and public speaker, even when people ask him not to be. Knows more about Scandinavian black metal than you, and isn't afraid to prove it.

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