CHANGES to the way investment products are sold is prompting more investors to use execution-only platforms, according to one savings institution.
Alliance Trust Savings is now planning to double its marketing budget this year in an attempt to seize a bigger slice of the self-investment market.
The shift in the way products are bought follows the introduction of new rules at the turn of the year under the retail distribution review, which banned independent financial advisers from charging commission.
IFAs are now paid a fee by those they are advising, but some investors are choosing the DIY route and using platforms that enable them to sort out their own finances.
Patrick Mill, managing director, said: “We all believe there is a very big market there.”
ATS, which currently has 5 per cent of the self-investment market, is also the first platform to target both retail investors as well as IFAs. Currently advisers have tended to band together to operate their own platforms – such as Edinburgh-based Nucleus Financial and Cofunds.
But Mill believes the ATS platform, with its flat charging structure, will become increasingly attractive to independent advisers buying investments on behalf of clients.
Currently only 10 per cent of ATS’s customers are IFAs but Mill expects this to grow to 40 per cent.
Earlier this month Katherine Garrett-Cox, chief executive of Alliance Trust, said the savings division – which was established to handle the traditional investment’s trust customers’ dividends – was on track to make a full-year profit.
The company has £4.1 billion of funds under management, up 21 per cent in the year, and more than 70,000 customers. She added the subsidiary is expected to make its first full-year profit in 2013.
“In time the idea is we are highly profitable and pay dividends up to the trust,” said Mill. He estimates that 10 to 12 per cent of financial advisers have “disappeared” as a result of RDR – either through retirement or having failed to pass the required exams.
IFAs and wealth managers have focused on those with between £50,000 and £100,000 to invest, leaving those looking to save the £11,280 limit in a stocks and shares ISA to their own devices – or face having to pay prohibitively high fees.
ATS’s rivals include platforms established by companies such as Hargreaves Lansdowne Vantage and Bestinvest Select. But the wide range of platforms means there is a confusing array of charging structures.
New rules are expected to come into force as part of the RDR regime to address transparency among fund supermarkets that impose annual management fees, platform fees and transaction charges. Currently rules allow platform providers to take kickbacks from sales of funds through their portals although this will soon be banned. However, it is uncertain when the FSA will impose the new rules.
Mill said ATS has never kept hold of fund rebates but has passed them back to its customers. “Whereas other platforms have lived off rebates from fund groups, we have never done that,” he said.