Cart Before the Horse?

Cart Before the Horse?
Simon Evans, Lead Consultant, RDR

A bright new age, driven by innovation and new technologies, beckons to us all: No longer do we need to trudge down to the restaurant, or evening classes to learn a new language, or queue for hours for tickets. The internet, mobile communication, and other frankly amazing new ‘star-trek’ devices have changed every aspect of our lives

So too in business, specifically, (since that is where I am expert), the Financial Services sector. It is in the midst of unprecedented change. Indeed, it would not be wrong to say this is a transformation that is under way, and the landscape will not be recognisable in a few years.

We are familiar with the impact RDR will have in just over 24 Months. IFAs are already assessing its impact, and devising ways of meeting all the (sometimes conflicting) stakeholder requirements. Wrap platforms are viewed as key to ensuring that independent advice is given in an efficient and cost-effective (and technologically advanced) manner, and there are a wide range of Wrap offerings available to choose from. Where early adopters such as CoFunds, Standard Life, Transact, Fidelity led the way, Barclays will follow

But have they been rewarded for their efforts? Early investors in innovation traditionally and justly reap the financial benefit of their trail-blazing. They made all the initial effort, after all, and they were far-sighted enough to study their market place, see the need, and act to fill it. Given today’s announcement of Macquarie exiting the UK wrap provision market, due to ‘challenging’ business conditions, what are we to think?

In the context of the UK, the demand is massive, and Macquarie folding is particularly puzzling as the size of the potential Wrap and Platform market is estimated at £1.8 trillion of assets and so far all platforms combined total just over 100Bn.

This leaves a huge potential market still available as the Wrap and Platform development in the UK is still in its early stages. So there is more than enough business to go round.

I would guess "execution challenges", another cited reason given by the company, is the real key in this case, as this would indicate a failure to deliver despite high start-up expenditure, and hence reduced business volumes.

Time and time again it has been proved that large reserves, inducing vast expenditure, are not a recipe for success. AMEX, Lifetime, and now Macquarie (not to mention many expensive false starts by other providers) go to prove my point.

In fact, good business management, good systems and delivering a service that meets market expectation are what are essential, and not merely the ‘jump on the bandwagon’ ethos, the ‘dazzle them with lights and mirrors’ adoption of new technology.

Innovation for innovation’s sake does not work. Due diligence, with it’s implied study of the market, and of technology, with a clear view of their aims and ambitions are as important as the resources (money - yes, but crucially the right people, too).

The news of Macquarie’s demise is already resulting in scepticism and caution: IFAs are watching to see who will be next. Do Transact, Ascentric , Novia and Nucleus have a firm enough footing to weather the turbulence before technology is outdated and the solvency rules catch them out? Are their sponsors’ pockets deep enough, and are they patient enough to stay in the market? And will IFAs thank their stars for a wake-up call to properly investigate the provider they sign up to? Some providers have indeed spent time and money in developing a sound business model, together with an understanding of the Wrap market, and will succeed. Others won’t be so lucky.

So yes, technology is amazing, and we live in exciting times. But there is need too, for the old-fashioned stuff: common sense, diligence, caution and the long view.