FC Business Intelligence Whitepaper 1

ABraveNewWorldforDistributionin
RetailandWholesaleAssetManagement

Disclaimer
The information and opinions in this document were prepared by FC Business Intelligence
Inc. and its partners. FC Business Intelligence Inc. has no obligation to tell you when
opinions or information in this document change. FC Business Intelligence Inc. makes every
eﬀort to use reliable, comprehensive information, but we make no representation that it
is accurate or complete. In no event shall FC Business Intelligence Inc. and its partners be
liable for any damages, losses, expenses, loss of data, loss of opportunity or proﬁt caused by
the use of the material or contents of this document.
No part of this document may be distributed, resold, copied or adapted without
FC Business Intelligence prior written permission.
© FC Business Intelligence Inc. ® 2014
www.customer-analytics-in-finance.com
ABraveNewWorldforDistributionin
RetailandWholesaleAssetManagement
With Contributions from:
David Ferguson, Founder & Chief Executive Officer, Nucleus
Nick Hungerford, Founder & Chief Executive Officer, Nutmeg
Steven de Vries, Head of European Retail Sales, Henderson
Global Investors
Author
Morag Cuddeford Jones
Editor
Marsha Irving
Head of Financial Services
FC Business Intelligence
mirving@fc-bi.com

A Brave New World for
Distribution in Retail and
Wholesale Asset Management
3
Conference & Networking Event
12-13 May 2015, London
Breakthrough to a New Distribution
Landscape: Bridge the Gap to Your
Investor and Intermediary
www.distribution-in-asset-
management.com
Nick Hungerford
Nick is the founding CEO of Nutmeg. Following a business degree at Exeter
University, Nick worked at Barclays in the areas of product, banking and wealth
management. Nick was a Divisional Director at Brewin Dolphin and has an MBA
from Stanford University in the United States. Nick’s industry and investment
views are respected globally and he frequently appears on Bloomberg, CNBC and
BBC and has been quoted in the Financial Times, Wall Street Journal and many
international publications. Nick has been a guest lecturer at academic institutions
including Harvard, Stanford and London Business School and has represented UKTI
around the world, promoting the benefits of doing business in Britain. Nick is a non
executive Director at Innovate Finance, the movement helping highlight the need
for customer-orientated progression in financial services.
Steven de Vries
Steven de Vries joined Henderson Global Investors in November 2001. He currently
heads up the Continental European retail business at Henderson and is also
responsible for Henderson’s strategy regarding Global Financial Institutions (GFI’s).
De Vries is Dutch and has close to 20 years of experience in the asset management
industry.
David Ferguson
Born & bred in Edinburgh and with a geeky interest in technology from a very early
age, the formative years of David’s career were spent as a trainee actuary with Life
Association of Scotland before stints with Ivory & Sime, Scottish Life International
and strategic consultancy The Abacus.
Having concluded that the prevailing business wasn’t fit for human consumption,
David embarked on a mission to create the UK’s first crowdfunded and genuinely
collaborative platform which resulted in the creation of Nucleus in 2006. He
remains immensely proud to lead the small team that has made Nucleus a credi-
ble and refreshing market participant, particularly at a time when honesty and
accountability have never mattered more.
David lives with his sparkling wife Monique and precious daughter Nicole in
Edinburgh, and enjoys dining in, dining out, live music and following the city’s 2012
Scottish Cup winning Heart of Midlothian FC.

4
Distribution in Retail and Wholesale
Asset Management
Confirmed Speakers:
David Ferguson,
Founder & Chief Executive Officer, Nucleus
Nick Hungerford,
Founder & Chief Executive Officer, Nutmeg
Roger Miners, Chief Marketing Officer,
Allianz Global Investors
Christian Pellis, Global Head of External
Distribution, Amundi Asset Management
Andrea Favaloro, Global Head of Sales and
Marketing, Generali Investments Europe
Shoqat Bunglawala, Global Head of Product
Development, Goldman Sachs Asset
Management
Simon Ellis, Global Head of Client Segments, HSBC
Asset Management
Steven de Vries, Head of European Retail Sales,
Henderson Global Investors
Scott Stevens, Head of Marketing,
EMEA, BNY Mellon Asset Management
management.com
Direct to Consumer: A Paradigm Shift in Asset Management
Distribution?
Since 2012 and even before, the financial services industry has begun a journey of
rapid evolution. A reputational hangover from the banking crisis of 2008 has seen
the sector move towards greater transparency and customer autonomy. Regulation
has moved to match, with initiatives such as the Retail Distribution Review (RDR)
introduced in 31 December 2012 by the Financial Conduct Authority to clarify what is
meant by financial advice, who should provide it and how much should be paid for it.
In addition, there is growing emphasis on the consumer’s individual responsibility
for financial affairs, seen most sharply in the April 2015 potential release of entire
pension pots upon request, to be used as savers see fit. This is in stark contrast to
the patrician model of meting out monthly or annual allowances to ensure the
reserves last the owner’s lifespan.
There are many other micro and macro-economic factors that are fuelling chang-
ing investing behaviours among the general public worldwide – speculation
regarding economic growth or shrinkage, interest rate moves and the oscillating
value of housing stock to name but three.
What is becoming clear is that the financial services community is about to see the
biggest change in investment practices in 300 years. But will that change mean
progress?
“It’s not revolution, it’s evolution,”Steven de Vries.
Why the Time is Ripe for D2C
Where once investors had two choices – management or do it yourself – a third
has muscled in between: direct to consumer. Neither entirely‘self-service’nor
fully serviced, it brings a genuine third way of approaching investment. Finally
joining the digital revolution, direct to consumer – or D2C – is riding heavily on the
coattails of the consumer education done by retail banks in the sphere of online
banking.
Now confident in managing balances, payments and real-time transactions
both via desktop and mobile, consumers are moving with increasing confidence
towards dealing with more complex financial transactions online, largely without
the assistance of financial professionals. Many banks now allow customers to
make changes to their mortgage in a handful of clicks while online brokers allow
dabbling in shares at the touch of a button.
Industry experts see that D2C is having a dramatic impact on the investment
landscape not in the sense that it will divert customers from either managed
services or DIY, but that it has the potential to bring in a wealth of new consumers
to investing altogether.
“The advantage of D2C is that we can put the best bits of DIY transparency and
speed together with the best bits of the posh stuff because you get the smart
investment service,”Nick Hungerford

5
management.com
There is also the question of value for money from the institutions’point of view.
Many will be asking if the D2C market is indeed worth pursuing:“There is the
argument that retail asset management is over-supplied and there’s more money
to be made in the institutional sector,”David Ferguson. Nutmeg’s Hungerford adds:
“From a revenue perspective traditional wealth managers have a floor on the size of
client they can accept. They have to cover their costs and at the same time human
constraints mean they can’t be everywhere at once. So it’s natural that they chase
the one big client as opposed to the 10 smaller one.”
However, critically in a post-RDR environment, D2C has the capacity to mop up
the clients that have suddenly become uneconomical to service otherwise, or who
would find the charges advisers are now obliged to make punitive.
“What we’re really talking about is the ability to go and get the really posh investment
service that’s usually only available to the wealthy, via the internet,”Nick Hungerford
However Nutmeg’s Hungerford is quick to disband of the notion that D2C is only
appropriate to catch small to medium investors falling through the IFA net:“One
common misconception is that we’re only for people with less than £250,000 and
yet so many of our clients are incredibly high net worth (HNWI). The reality is that
paying 1.5% on top of 1.5% for investment fees and commissions is expensive.
These HNWI use Amazon and Apple and realise that good service and amazing
product can be facilitated by technology and the internet.”
The FCA is keen for fund groups to engage in D2C to overcome the issue of
orphaned clients – those left without advice as the RDR causes it to become more
expensive for them to access an IFA. It is not solely a question of weighing up the
costs and deciding it’s not worth it, the reviews and online self-service culture
means consumers’immediate reactions tend towards seeking the wisdom of
crowds online and through social media.
This is creating a challenge for D2C platform providers however. Increased consumer
confidence paradoxically combined with low institutional trust and a thirst for value
for money is seeing an increase in numbers buying directly from the provider in so
called DIY investments. According to The Platforum, the number of UK consumers
buying direct increased by nearly one million in six months to the middle of 2013.
The number buying through D2C dropped 7% over the same period.
Establishing D2C Channels
One important thing to consider when establishing a D2C channel is not to create
overlap with advised client business. This is a danger when companies engage
in multi-channel and can effectively cannibalise their own business. In a parallel,
ecommerce is often seen as‘stealing’footfall from its bricks and mortar businesses,
D2C channels need to be created with a defined purpose in mind. Not only does
this transfer into a positive consumer experience but it prevents crossover internally.
There are two dominant options – to create a proprietary platform (such as
Hargreaves Lansdown) or to brand a white label technology such as Strawberry (a
white label version of Investment Funds Direct Ltd (IFDL) platform1
).
1 http://www.professionaladviser.com/professional-adviser/feature/2342217/tech-review-mark-polson-hulls-straw-
berry-invest

6
Asset Management
Confirmed Speakers:
David Ferguson,
Nick Hungerford,
Management
Asset Management
management.com
These are not inexpensive options and committing to the creation of a D2C
channel is highly contingent on the presence of customers at the other end.
Standard Life is reportedly investing some of the proceeds of the £2.2bn sale of its
Canadian ManuLife business (09/2014) in a D2C proposition. Critically important
bearing in mind that many are fleeing from IFA fees they already consider onerous.
Money on Toast’s site gives a reasonably large amount of advisory-type information
away for free and then charges 1% a year in platform charges and management
costs if investors buy through it2
.
“One option is to build it yourself, Fidelity for example, or get very good at promot-
ing yourself through others’platforms such as Money on Toast,”David Ferguson.
However, as has already been argued, not all asset managers are keen to enter the
D2C space. Those that are willing to dip a toe are not interested in investing large
sums in striking out alone. The options here appear to be through partnerships.
Henderson Global is one of those that expects its output to be managed through
third party D2C platforms.
“For asset managers, D2C is just a different way of distributing. I don’t see Henderson
setting up its own D2C infrastructure. It would be like Campbells Soup opening a
Campbells store. It doesn’t make any sense for them. It focuses on making the soup
in the factory and its distributors take care of the D2C,”Steven de Vries.
De Vries notes that Schroders is also involved in the Nutmeg platform and states
that an alternative solution is to have a group of asset managers creating their own
platform, outsourcing the management of its infrastructure to a third party. “The
challenge for asset managers trying to find out how they can distribute in the D2C
market is all about being really good at what they do,“ David Ferguson.
D2C Innovation – Ones to Watch
As we have come to expect, the early innovators in the market disruption space
almost always come from the start-up community. The burgeoning D2C asset
management sector is no exception. Organisations with typically digital monikers
such as Money on Toast, Strawberry and Nutmeg are all startups taking on the
establishment.
Of the three mentioned above, Nutmeg (although a three year-old startup) is one
making significant waves, although the opinions of industry experts interviewed
for this paper varied as to the company’s potential influence on the market.
“Lots of people are innovating at the moment but it’s very small. I would be
surprised if Hargreaves Lansdown’s market share is less than 50-60%. Fidelity also
has a big presence. The game changer is unproven as yet. We’re observing what
Nutmeg is doing but no-one has really generated any traction yet. It might just be
too early,”David Ferguson.
“The best way to deal with customers efficiently is to use the internet and so
that’s why there are a lot of web-based solutions covering pure DIY right up to
2 http://www.telegraph.co.uk/finance/personalfinance/investing/9715165/Will-you-take-a-robots-financial-advice.
html

7
management.com
discretionary management. Nutmeg is one of the best known initiatives here.
It reminds me of EasyJet’s emergence where the business model is changed by
Robin Hood-type entrepreneurs. They say:‘Consumers have always been exploited
and we’re here to take care of that with lower, clearer fees and so forth’. If Nutmeg
does a great job of being transparent and having a good rapport with its custom-
ers, it will do very well,”Steven de Vries.
Within the market, Hargreaves Lansdown is the one most cited by interviewees
for this paper as well as across investor media as making the biggest impact with
its D2C platform, Vantage. Certainly not new to market, having been launched in
2002, the company has since lowered its minimum investment levels, arguably to
access the new‘orphans’. The company is expected to launch actively managed
portfolios for direct clients in the first half of 2015 with the minimum investment
level no greater than £10,0003
.
Money Marketing (MM) (The Platforum: Hargreaves Lansdown remains the D2C
platform to beat, 05/09/14)4
suggests its success is down to using its own technol-
ogy so clients see seamless integration of their investments, as well as strong
customer service. This and the fact that MM suggests its longevity and size have
endowed it with a PR and marketing machine with enough experience and budget
to give the company the brand kudos consumers require from a trust point of view.
Platforms such as Nucleus are designed to be customer-facing but very much
operating under the guidance of financial advisers. The customer’s personal platform
or wrap – is created with the help of an adviser and while they can use it to move
investments and cash around as they see fit the vast majority are operating with their
adviser as part of an ongoing financial plan. While this seems a similar scenario to
pre-RDR financial advice, Nucleus us at pains to point out on its‘Client Manifesto’that
its fees are clear and transparent and separate from any IFA or fund manager.
Meeting Consumer Expectations
As the banking crisis amply demonstrated, consumers are seeking transparency
and trust from financial institutions. The sense of the challenger brand that has
been so successful in disrupting other sectors – Amazon and Easyjet for example
– is not as easily applied to financial services. Distrust of institutional behemoths
may remain but there is also the pervading attitude that experience and legacy
count. Nutmeg’s Hungerford points out that a company such as HSBC has 3m retail
account customers to lean on and also states:“You can’t build a finance company
and experiment with people’s account balances.”So not all startup rules apply.
For entrants in the D2C asset management model, this means they have to bridge the
dual expectations of technological innovation (and the benefits that brings including
increased speed, reduced cost and flexibility) with a trusted heritage and expertise.
It’s also about providing a product suite that is manageable for the average investor.
Henderson’s de Vries notes that there will be a preference to use low cost products:
“If you’re setting up it needs to be very transparent for private investors so you don’t
3 http://www.ftadviser.com/2014/09/24/investments/hargreaves-lansdown-to-launch-d-c-portfolios-wu5ZvVQUY-
nEotVmc5PVHgJ/article.html
4 http://www.moneymarketing.co.uk/news-and-analysis/wrap-and-technology/the-platforum-hargreaves-lans-
down-remains-the-d2c-platform-to-beat/2013805.article

8
Asset Management
Confirmed Speakers:
David Ferguson,
Nick Hungerford,
Management
Asset Management
management.com
want to have a full range of very complex and difficult products. The use of Exchange
Traded Funds (ETF’s) and passive products will be preferred to active funds.”
He goes on to point out that in terms of volume this represents a small part of the
market so larger asset managers will not be concerned about losing market share
to the D2C platforms:“The Nutmegs of this world will address those who know
they should invest but don’t want to because it’s so tricky.”
“The void in the B2C market and it’s the road Nutmeg has gone down is:‘Where
can I engage with my money?’. Most of the tools that exist are for those that have a
good idea about what they’re trying to achieve. I think there is space for a platform
that shows you how to manage your money. Not with layers of fee complexity.
Really simple, probably passive only,”David Ferguson.
“It depends on the segment and what they want to hear. You know as a consumer
that you have your own selection of sites that you’re registered with and you know
how often you want to hear from them. Financial services has a track record of
not being client focused and targeted. With investment you might want to hear
when a gain or loss has been made or a tax situation has arisen. The industry has a
mindset that every communication must be a sales call. Stop selling to me all the
time,”David Ferguson.
Accessing New Consumers
Nutmeg is certainly taking the direct approach for D2C and in January 2015
was engaged in a high profile outdoor advertising campaign in the London
Underground. Steadfastly aimed at the individual investor, the ads are backed up
by a social media campaign that is used both to engage and acquire new custom-
ers but is also used internally to motivate staff.
Vitally the campaign is aimed squarely at attracting the non-traditional investor or
those who feel disenfranchised by more traditional companies.
“What D2C does is make us rethink how we communicate with clients because
they are more sophisticated and it’s easy to lose them. For us as active managers
we try to differentiate by educating clients or helping our partners to educate their
clients. Giving support rather than stepping onto the forefront.”Steven de Vries

9
management.com
Equally, the startup mentality has the jump on more traditional entities through
their habitual ease with social media. As we have already discussed, consumers
are far more likely today to seek advice from the online community. What they
risk in armchair experts they make up for in zero money spent. While the advisory
community might recognise that this is potentially the ultimate false economy, the
imperative to be where the customer is has never been stronger. This is why social
media is becoming an important battleground and Nutmeg’s Twitter presence and
Strawberry’s Facebook page are as vital as underground ads and TV slots.
But Nutmeg, while leading the disruptive charge, remains a relative minnow
in terms of customer volume. A Hargreaves Lansdown commenter noted in
FT Adviser:“If the 2m-plus people on Hargreaves Lansdown’s mailing list get
bombarded with positive messages about discretionary services, it will certainly
heighten the investing public’s awareness.”5
Naturally, any marketing executive worth their salt will advise against‘bombard-
ment’but the message is clear: the large marketing budgets of incumbents
combined with voluminous existing customer bases certainly provide an advan-
tage, however their communications help grow a market that, in its current infancy,
enjoys a large customer opportunity.
Whether large or small, all asset managers looking to engage segments new or
old that fit the profile of the ideal D2C customer will need to embrace the internet
if they are to succeed.“I’m proud of the way Henderson is developing its digital
strategy. It’s quite interactive and informative and that has been driven by client
demand. People want to be informed in a digestible way,”Steven de Vries.
Asset managers will also have to accept that interaction is vital because the
consumer is more attuned to the concept of chasing the best deal and periods of
loyalty are shrinking.“People have learned to switch more and we have to be more
accepting of it. We shouldn’t be slowing down that process to make it difficult. But
the main interaction we can capitalise on is setting up accounts. The simplicity of
the website is something we’ve learned about. If you confuse people, they just stop
– it’s why advisers have been so successful, they hand-hold throughout the process
and can offer the comfort of‘leave it to me’when the conversation becomes
complicated.”Nick Hungerford.
Communications to support the watchwords of ease, simplicity, and defying
complexity are vital to not just bringing customers on board but to keeping them
there and turning them into advocates to encourage the next wave:“We do a lot of
outdoor advertising but referrals are vital as well. Customers refer us a lot and we’re
expecting that to remain high,”Nick Hungerford.
A Brave New World for Distribution in Asset Management?
Allianz Global reported in FT Adviser in August 2014 (Trusts enjoy boost in platform
sales) that D2C was already gaining influence in its business:“The percentage of
shares held via execution-only platforms, the majority of which are D2C platforms,
has increased 160 per cent for the RCM Technology Trust, 180 per cent for the
5 http://www.ftadviser.com/2014/09/24/investments/hargreaves-lansdown-to-launch-d-c-portfolios-wu5ZvVQUY-
nEotVmc5PVHgJ/article.html

10
Asset Management
Confirmed Speakers:
David Ferguson,
Nick Hungerford,
Management
Asset Management
management.com
Brunner Investment Trust and almost 60 per cent for the Merchants Trust over the
past two years […] it is the D2C platforms where we believe there is real growth.“6
That D2C will turn asset management distribution on its head is widely disre-
garded by industry experts as a valid prediction. Those interviewed for this report
and other media outlets largely agree that it will present an opportunity to attract
a previously untapped segment of potential investors as well as targeting those
‘orphaned’by post-RDR IFA fee hikes.
“More simple products and passive investing will be a massive share of the market.
We’ll also see the dismantling of over-engineered product structures,”David
Ferguson.
“We need to continue to be aware, to monitor and work with those platforms that
add value to us, preferably partnering up and joining forces to deal with clients,”
Steven de Vries.
Increased transparency will be demanded not just in the products but in their
marketing.“We need to upgrade our communications to clients and partners and
the internet is an important part of that,”Steven de Vries.
Nutmeg’s Hungerford believes that customer experience will be the strongest
driver of change in the market and is more bullish about the impact D2C will have
on asset management distribution and customer acquisition:“The next five years
will see phenomenal change. There’s going to be a rise in passive funds and people
will feel more confident about making investment decisions without the face to
face. They’re going to expect hugely improved products.”
Disruptors enjoy the freedoms their position brings but also bear a large part of the
burden of education. The ability to attract customers away from IFAs perceived as
expensive will be the easy win. But delivering the confidence both in their product
and in consumers’abilities to take greater control of more complex financial instru-
ments will prove challenging.
6 http://www.ftadviser.com/2014/08/04/investments/wraps-and-platforms/trusts-enjoy-boost-in-platform-sales-yz-
PXlfha0JdxJlc6t6TN6J/article.html

11
Contact Us:
Marsha Irving
Head of Financial Services
FC Business Intelligence
T: +44 (0) 207 375 4353
E: mirving@fc-bi.com
Distribution in Retail and Wholesale Asset Management
David Ferguson, Founder and Chief Executive Officer at Nucleus, Nick
Hungerford, Founder and Chief Executive Officer at Nutmeg, and Steven de
Vries, Head of European Retail Sales at Henderson Global Investors all featured
in this white paper.
All five of these individuals will be speaking at the Distribution in Retail and
Wholesale Asset Management conference and exhibition (12-13 May, London).
This niche, high-level European show will feature discussions on how new
innovation is dramatically changing a traditionally closed industry. Meet these
high profile speakers onsite at the show and continue your discussions in
person on about how the changing investor landscape, including the rise of
D2C is directly affecting your industry.
To receive an additional £200 off of current booking rates, quote WP200 in the
discount field on our registration page
www.distribution-in-asset-management.com/register

FC Business Intelligence Whitepaper 1

More Related Content

Similar to FC Business Intelligence Whitepaper 1

FC Business Intelligence Whitepaper 1