When it comes to best execution, wealth management platforms face a radically different set of challenges to those faced by institutional fund managers.
In the Financial Conduct Authority’s Thematic Review, published one year ago, the regulator stipulated that firms must take “all reasonable steps to obtain the best possible result” for their clients.
However, platforms operating in this market have often been criticised for failing to execute in real-time because of legacy systems or the cost involved. The worst perpetrators bundle trades together and execute them at the end of the day.
Unlike some operators in the wealth platform market, Ascentric was originally built as an equity trading platform and is consequently a member of the London Stock Exchange.
Royal London – the UK’s largest mutual life and pensions group with funds of £79 billion under management – acquired the business in November 2007 from Investment Funds Direct.
Many of Ascentric’s rivals started out as fund platforms, which has restricted their evolution somewhat and certainly influenced their execution policies. For Ascentric, its history turned out to a huge benefit in today’s regulatory climate.
At the time of writing, the platform had around £9.6 billion in assets under administration and the management there hope to break the £10 billion barrier by the time it reaches its ten-year anniversary in 2017.
As you might expect from an operation of this size, it has a relatively large trading team with 13 staff concentrating on in-house dealing and trade support, some of which have institutional trading backgrounds.
Heading up the operation is head of dealing Daniel Hughes, the former European director of equity trading at Knight Equity Markets.
Hughes joined Ascentric in January after three years at his old firm where he was focussed on managing larger orders in less liquid securities.
These days, his focus is on transaction cost analysis, transaction reporting and, of course, timeliness of execution. The beginning of April has been a busy period for the Ascentric team.
For the wealth market, the new tax year is traditionally when investment advisers rebalance client portfolios, which mean dealing desks can be a busier place than usual.
This presents a tricky task for Hughes and his team as they don’t currently use algorithms to execute their trades and can’t deal in parts because it would upset any client portfolio rebalancing.
Another marked difference to the institutional world is that Ascentric’s dealers have to be extremely careful with the information they give out to advisers. As an execution-only platform, they are forbidden from giving out any information, which could be considered ‘advice’. That said, they often face questions from advisers on liquidity statistics.
Mike Morrow, sales and marketing director at Ascentric, said its clients are taking a much keener interest in the trading function of late.
He explains: “For the first time the market is starting to ask questions about how we place our non-fund dealing.”
Like their institutional cousins, retail intermediaries are becoming more interested in the quality of their traders and the costs associated with trading itself.
It is perhaps no surprise that Ascentric decided to build its marketing campaign around trading charges at the start of the year.
Ascentric’s Morrow says retail intermediaries paying closer attention to trading quality and cost has meant dealing with more requests about the dealing team as a whole.
He said: “They want to meet the people at the front desk who are answering the calls, they want to meet the dealing team and have a decent level of visibility in the business.”
In January, the company began to offer a standardised fee structure to financial advisers alongside its standard charging model.
The new policy allowed intermediaries to opt for a flat 30 bps fee up to £1 million and 10 bps for additional assets over £1 million for all fund trades and assets in model portfolios including exchange traded instruments.
In recognition of how competitive dealing charges have become across this market, the company also revised its standard charging structure with dealing charges on funds and ETIs cut too.
Royal London as a group has been keen to promote its decision to move away from its old, fragmented model in favour of one, distinct group brand. All of the previous subsidiary brands are being phased out, except for Ascentric.
Despite that head of dealing, Daniel Hughes, says the business has benefitted from the closer working.
He explains: “Andrew Carter, the chief executive of Royal London Asset Management is also CEO of wealth, which we fall under as a group. I have taken junior dealers up to spend a morning with RLAM to give them an overview as to what they do.“We are looking for opportunities to grow the knowledge within the business and use it as a development tool.”