With the Retail Distribution Review (RDR) now being implemented almost half year ago, the UK life, pension and investments markets are now starting to experience the real impact of one of the most significant reforms in the retail investments market. This blog is the final of four, which seeks to provide stimulus for discussions on strategic challenges for the different market participants in the post-RDR world. 

This blog focuses on the strategic challenges for the non-advised platform proposition.  

The direct market is poised to gain from RDR legislation. Those already playing will need to tailor their approach to different segments and develop dynamic pricing capabilities. While those currently with limited platform capabilities have to act quickly if they want to obtain a position in this market.

The non-advised market is a sizable and growing opportunity. Currently, the non-advised market represents c.20% of the wealth market, with a total of c. £450 billion Assets under Management. Future growth is supported in three ways. Firstly, the direct market will see significant natural growth as consumers increasingly use and transact on the internet. Secondly, the advice gap is acting as a further catalyst representing an additional opportunity to service up to £125 billion of Assets under Management. And thirdly, the shifts from advised to non-advised will likely accelerate as the legacy portfolio will have to be migrated to 'clean share classes' as rebates will be abolished in 2016.

To capture the direct opportunity and serve the wide variety of people it represents, existing players will need to differentiate their offerings to specific segments and needs (e.g. Barclays offers a simplified investment platform on Barclays.co.uk with either a choice of five risk rated funds or 70+ funds specifically targeting the mass market customers, and a more comprehensive platform for advanced investors on BarclaysStockbrokers.co.uk with c. 2,500 funds with wider investment instruments, targeting the financially literate investors). In addition, platforms will have to develop pricing capabilities and implement a pricing strategy which replaces the lost revenues from the ban on rebates.

With the proliferation of direct offerings and the cancellation of rebates on legacy portfolios by 2016, direct offerings will need to establish themselves within the next two-three years. Those who would like to play have to make up their mind quickly and will have to choose between building a bespoke platform, buying an out-of-the-box solution or partnering with an existing B2B or B2C platform provider. Clearly with time running out, buying an existing solution or partnering seem the preferred options.

Table: Comparison of options to develop a D2C platform

Blog 3 - TABLE 1 - Comparison of options to develop a D2C platform
For both new and existing players, direct platforms could either be part of a multi-channel strategy or a direct-only offering. Most providers with an existing 'captive' customer base will see this as part of a multichannel strategy; other vertically integrated players, for example, investment managers, may however see this as a new route to market or an opportunity to increase their margin capture across a value chain, which is subjected to continued downward margin pressure.

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