24th February 2020

The Race to the Client and how it’s realigning the value chain

By Henry Cobbe, Head of Copia Capital Management, the investment solutions division of Novia Financial plc


In today’s world where interest rates – and real return expectations – are low, the downward pricing pressure across the investment management industry is an established and accelerating trend.  In addition to technology and competition, the FCA, the UK regulator, is taking vastly more interest in supporting good customer outcomes through a range of measures, including the introduction of product governance obligations, “all-in” cost transparency and independent value for money assessment.

Different structures, similar objectives

Whether invested directly, through an adviser, with a discretionary manager, product provider or a pension scheme trustee, the nature of these different channels to a large extent influences the service level, cost structure, wrapper structure, custody arrangements and product types that make up a portfolio.  But whatever the channel, investors end up, typically, with a multi-asset portfolio that is designed to get them from A to B for a given risk-return level and time-frame.  Traditionally, the more collectivised (and greater the scale) for the channel type, the lower the fees, and the more individualised (and smaller the scale), the higher.

But that is beginning to change.

A price cap’s furthering reach

The regulator is, in my view, implicitly ignoring the above channel types by asking direct-to-consumer providers of DIY SIPP wrappers to be mindful of the auto-enrolment price cap of 0.75% when offering non-advised drawdown.  Price caps, even soft ones, have a habit of providing a broader reference or anchor.

The challenge has now been made: if the Total Cost of Investments (OCF+Transaction Costs+Platform Fees+Management Fees, but excluding advice) can be 0.75% in one channel, why can’t that be the case for other channels too?

As workplace schemes become more individualised, and individual schemes become more mass-market, the retail and institutional worlds are beginning to collide, and this “institutionalisation of retail” means a focus on greater governance, increased professionalism, at substantially lower end-client costs.

Re-aligning the value chain

When looking at the overall investment value chain, it’s worth considering the relationship between cost and impact on client outcomes.

Top of the tree, in terms of having maximum impact on client outcomes, is having a robust financial plan.  Good advice means robust assessment of suitability, for example selecting the right risk profile in accumulation, and the right withdrawal profile in decumulation; understanding investor preferences and values; creating informative cashflow models, embracing a holistic approach that encompasses all aspects of a client’s financial needs.  Financial planning means, in my view, being the adviser entrusted with a family’s financial wellbeing today and in the future.  The cost of good advice, typically cost around 1.00% before RDR and is between 0.50-1.00% today.

Next in terms of impact is having a robust asset allocation strategy to deliver the investment component of that financial plan.  Assuming the strategy is designed and actively managed by discretionary managers, this typically costs around 0.50% including VAT before RDR and 0.36% today.

That investment strategy needs to sit somewhere for custody and administration, which is the role of the platform.  This typically cost, on average, 0.50% before RDR and, with the increase in competition, is around 0.35-0.40% today.

Populating that investment strategy through actively managed funds, which were popular with advisers before RDR, would mean an OCF of 0.80% to 1.00%% or so, and about 0.60% to 0.80% today.

This means that since RDR, the all-in Total Cost of Ownership for the end investor has decreased by 50 basis points.  Will it drop further?  Almost certainly.

But it’s not just the quantum of the decline: it’s also the allocation of value within the value chain that makes for really interesting reading.  Pre-RDR, an adviser fee of 1.00% made up 36% of the Total Cost of Ownership.  In the future, we expect that the same 1.00% will represent 57% of the Total Cost of Ownership.  That’s a fundamental shift in value chain alignment which is what’s driving the “race to the client” by providers.



Impact on Client Outcomes


As % of TCO


As %


As %

a. Advice (“IFA”)








  • Managed Asset Allocation (“DFM”)

Very High







  • Custody & Administration (“Platform”)








  • Market Access (“Funds”)








b. Total Cost of Investing (“TCI”)








c = a + b

Total Cost of Ownership (“TCO”)








* I define Total Cost of Ownership as Advice Fee, Management Fee incl VAT, Platform Fees, Fund OCF+Transaction Costs.  Total Cost of Investing is TCO excluding Advice.  Source: Copia Capital Management, for illustrative purposes only

The Race to the Client

Sustained fee compression across the value chain, means that there is a growing awareness within the industry that their position in the value chain can be commoditised.

That’s why there is so much corporate activity and proposition change from all the different parties within the value chain.  Fund houses are investing in platforms, platforms are setting up advice firms, and advice firms are setting up DFMs.

All of these parties are afraid of watching their products or services being commoditised, and hence many want to move to a vertically integrated model.  I call this the “Race to the Client”.

And yet at the end of the day, there is only relationship that matters and that cannot be commoditised.  And that’s one of trust and personality which makes up the relationship between the adviser and their client.

Who has the power?

So ironically, although fund houses may still see advisers as “Distributors”, the truth is now the opposite.

Instead of being price takers, advisers are leveraging their scale to become price setters.

Instead of being proposition takers from DFMs, advisers are leveraging their scale to create custom DFM mandates.

In the race to the client, our view is that advisers will win.  But only if they take control of the value chain and reconfigure it to their clients’ best interests.  For this reason, we see advisers becoming less like fund pickers, or model pickers, or manager pickers: but more like fiduciaries who owe a duty of care to their clients and help them navigate the maze of financial services to ensure good customer outcomes, and excellent value for money.

Stop helping your competitors

What’s so extraordinary given this race to the client is that so many adviser firms seem determined to help their bigger branded, better capitalised competitors.

Advisers are courted by investment firms that prefer to offer advice directly.

Advisers are courted by platforms that prefer to offer accounts directly.

Advisers are courted by fund houses that prefer to offer funds directly.

Novia is proud of being a business-to-business business in the platform space.  The same applies for Copia, its investment solutions division.  We only work with advisers (on an agent of client basis), as we believe they know and understand their client’s needs and characteristics best.  Our job is to design, build and manage the investment strategy to align to given objectives in a way that is transparent, robust and professional.

Enhancing business value

Of course performance always matters, but I’ve never met an adviser who has been fired over a soggy Sharpe ratio.

But I do know plenty that have grown persistent income streams because of the trust, empathy and responsiveness that are so highly valued by their clients.

If that persistency of income is delivered with reduced business risk through good oversight, good governance and good value, then the firm’s a winner.

So, as more and more of those big brand players reposition themselves across that fast-commoditising value chain, and as the pressure on Total Cost of Ownership continues its downward trend, the most durable thing is the value of your advice.

As the race to the client surges forward, there’s good news for advisers: you’re already in pole position.  



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