Split over who will cater to the ‘less rich’
On one side are the companies who would distribute the kind of retail savings products suggested by the UK Treasury review, and on the other are the fund managers who would more likely focus on creating products. The European investment fund industry is set to polarise between distributors and manufacturers, as governments encourage the creation of retail savings products for people on lower and middle incomes. Since this split is likely to occur in the UK ahead of the rest of Europe, British providers could have an advantage when doing business on the Continent, reports the Bank of New York (BNY), which surveyed 40 leading banks, life assurers and fund managers on their views regarding potential supply and demand for such “stakeholder” products. The findings revealed that banks and life assurance companies are the likeliest to cater to demand for these products. Fund managers are less likely to distribute them and more likely to concentrate on manufacturing. Nick Parkes, head of European fund services at BNY, said the same scenario was likely to pan out across Europe. But while the UK should see this trend taking shape in around five years, in line with demand for stakeholder products, it would come later on the Continent. This is because the UK Treasury has already carried out a review of medium and long term savings. The author of the review, Ron Sandler, has called for “comprehensible products, the features of which would be sufficiently tightly regulated to ensure that these could be purchased safely without regulated advice”. The products should be available in the form of mutual funds, pension schemes and with-profits products. Mr Sandler has proposed a 1 per cent ceiling on charges. Such a price cap would force a review of in-house operations and back office costs, according to Mr Parkes. This will lead to a growing impetus towards outsourcing, he believes. Mr Parkes added that this pricing discipline could give UK providers entering the Continental European market a distinct advantage.
