- More than 60% of fund platforms in the UK, Germany and Sweden have more than 50% of their AUM in DC
- Platform clients are attracted to the flexibility and clarity on charges
- More than 75% of manager's new business comes from platforms
Regulation allowing retiring defined contribution (DC) savers in the United Kingdom to invest their DC pots, not only to buy an annuity, will help underpin the growth of platforms in this evolving market, according to the latest Cerulli Associates' European Defined Contribution 2015 report.
At least 60% of the fund platforms from the United Kingdom, Germany, and Sweden surveyed by Cerulli had more than half of their assets under administration (AUA) from DC pensions. This was nearly double the proportion (33%) of platforms surveyed that had more than half of their AUA from defined benefit (DB).
Cerulli found most asset managers surveyed are targeting platforms to some degree, to sell funds variously to UK and German DC savers this year. In the United Kingdom platforms are rivalled by consultants as asset managers' most popular DC distribution channel, whereas in Germany insurers are comfortably the favorite channel.
Platform providers Cerulli spoke to for the report said that clients were attracted to the flexibility and clarity on charges. In the near term it will be the more financially literate investor and their financial advisors who use them. Over time platforms will need to develop products and services if they are to appeal to a wider clientele.
"According to one research manager at a UK platform provider, some 75% to 80% of fund managers' new business flows are coming via platforms," says David Walker, director of European institutional research at Cerulli and the author of the report. "Therefore managers need to seriously consider listing their funds on them," he adds.
Platforms should not ignore the "institutional" end of the UK DC industry, where platforms can be used to help design DC default funds, for example. Platform providers should take note that, according to Cerulli research for this report, managers expect default funds to use non-mainstream investments more in future. If this happens, platforms may have to relax current strictures they have regarding fund dealing terms.
"It will challenge default fund designers, out to 2017, to fit more non-mainstream assets into defaults, but managers expect it," says Walker. "But Europe's DC fund platform industry will either need to give ground on frequent dealing stipulations, or risk thwarting asset managers' default design expectations with regard to alternative assets," he adds.