UK Distribution Dynamics 2Q 2012

Q212 ISSUE AUG12
Distribution dynamics
Page 1
Wholesale distribution
Page 3
Primary business channels

Page 8
Products and asset classes

Page 16
DISTRIBUTION DYNAMICS
Summary
As concerns resurfaced about the Eurozone and the
Key data 1
global economy in general, investors became more

cautious again and gross sales declined by 13% in the
second quarter. Net sales were down 59%.
Hargreaves Lansdown maintained top distributor
position but other intermediaries are closing the gap.

Platform sales bucked the downward trend and rose by
1.6% as financial advisers pushed more business in

their direction.
Second quarter 2012 gross sales
25.3bn
Q212 v Q112 (%)
+35.3%
Q212 v Q211 (%)
+3.3%
Second quarter 2012 net sales
1.7bn
Direct intermediary (gross)
8.9bn
Life and pension providers (gross)
2.2bn
Platforms (gross)
Life & Pensions (wholesale and primary business
11.0bn
channels) suffered from downturn in pension business

after a stronger first quarter.
28,000
24,000
20,000
16,000
12,000
8,000
4,000
0
Q1
Q2
Q3
2008
For channel definitions, see page 21.
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2009
Direct/Interm
Q3
Q4
2010
L&P
Platform
Q1
Q2
Q3
2011
Q4
Q1
Q2
2012
DISTRIBUTION DYNAMICS
Renewed uncertainty about the Eurozone and the state of the UK

economy led to a fall in fund sales in the second quarter. Gross
business dropped 13% on the previous quarter and was 10% lower
than at the same time last year. A disappointing start to 2012; sales
in the second quarter are often higher due to a surge in early-bird
ISA investors taking up their new allowance. The fall in net sales was
even more dramatic at 59% and highlighted weaker sentiment.
Although ISA sales were higher, they did not
offset a more cautious approach to general
investment and a reduction in pension
business. But not all wholesale distribution
channels suffered a reduction in business.
Platforms actually saw their gross sales increase by 1.6% while their
market share advanced to a record-breaking 49.5%. Platforms have
now decisively overtaken the direct/intermediary channel. Less than
two years ago the roles were reversed. Meanwhile, the fall-off in
pension business saw the L&P channels market share decline to its
lowest level on Financial-Clarity records at 10%.
PLATFORMS LEAD
THE CHARGE
Sales by wholesale channel (bn)
Q212 v Q112 (m)

12,000
100
10,000
80
8,000
60
6,000
40
4,000
20
2,000
0
2010
2011
Direct/Interm
2011 YTD 2012 YTD

L&P
Platform
Market share trends (%)
Direct/interm
Q211
L&P
Q112
Platform
Q212
Market share in Q212 (%)
Direct/
Interm
L&P
Platform
2010
50.5%
13.6%
35.9%
2011
46.4%
13.6%
40.0%
2011 YTD
44.2%
12.5%
43.3%
2012 YTD
41.5%
12.8%
45.7%
Fundscape LLP and Matrix-Data Ltd
Direct/
Interm
40.4%
Platform
49.5%
L&P
10.1%
WHOLESALE DISTRIBUTION
LEADING DISTRIBUTORS
The top 25 distributors in the
second quarter are shown alongside
the leading distributors for the year
to date. The majority of the firms
that did well in the first quarter are
also among the frontrunners in the
second quarter.
However, a number of new
distributors entered the frame
including C Hoare, Grant Thornton,
Mattioli Woods, and Kellands (Hale);
four quite different distributors.
C Hoare is a long-established private
bank, while Grant Thornton is an
accountancy firm. However, Mattioli
Woods started life as a pension
consultant 20 years ago, but has
been spreading its wings. Last year it
acquired Kudos Independent
Financial Services, an employee
benefits consultant and wealth
manager. It recently announced that
its full-year revenues from wealth
management increased by nearly
50% and account for around a third
of its total group revenues. It has
just launched a new portfolio
management service.
Kellands, meanwhile, is a national IFA
company, although its really a cross
between a national and a network
since its partnership programme
allows companies to retain their
ownership. Its Hale company, which
is featured in this quarters tables,
covers the wider Cheshire and
Greater Manchester area... in other
words the wealthy footballer belt.
Distributor sales fell in the second
quarter in line with the general trend
but there were some firms that
produced increased business. One of
the biggest improvements was at
Quilter, where sales were up over
60%. Quilter, now owned by private
Top 25 distributors in
Q212
Top 25 distributors
2012 YTD
Hargreaves Lansdown
468
Hargreaves Lansdown
Sesame
253
Brewin Dolphin
516
Tenetconnect
250
Sesame
510
Brewin Dolphin
213
Skipton
491
Skipton
170
HSBC Bank
317
Quilter & Co
162
Positive Solutions
298
Positive Solutions
146
Quilter & Co
262
HSBC Bank
128
J P Morgan Chase Bank
254
UBS
120
Tenetconnect
465
Financial
112
Joseph R Lamb
243
AWD Chase de Vere
108
Financial
242
Seven IM
100
Lighthouse
212
Lighthouse
94
Seven IM
208
Saunderson House
89
UBS
208
Bestinvest
87
AWD Chase de Vere
191
C Hoare & Co
78
Bestinvest
187
Coutts & Co
69
Saunderson House
170
Mattioli Woods
68
MPS Mortgage Services
166
Grant Thornton
67
Raymond James
162
Kellands (Hale)
66
Coutts & Co
162
Raymond James
66
C Hoare & Co
157
MPS Mortgage Services
65
KMG Independent
149
Gerrard
65
Gerrard
148
Riverbourne
65
Kellands (Hale)
146
Joseph R Lamb
65
Riverbourne
143
equity firm Bridgepoint, has been

focusing on building its links with
advisers in recent years and
continues to expand its support
team. It was one of the first wealth
managers to offer discretionary
management services to IFAs and
provides the choice of five model
portfolios on a range of platforms.
TenetConnect, the IFA network, also
saw its flows increase in the second
quarter. It offers a wrap service
1,120
called Clear, and has its own asset

management company Sinfonia
which has a range of five risk-rated
funds, managed by BNP Paribass
Fundquest.
The second half of the year is likely
to prove much quieter for
distributors as firms focus on refining
their propositions and making final
preparations for the arrival of RDR.
CHANNEL SNAPSHOT: PLATFORMS

It was another record-breaking quarter for
the platform wholesale channel. Despite
the general decline in fund sales, flows
through platforms bucked the trend and
rose to close to 11bn. In market share
terms, platforms have now overtaken the
previously dominant fund manager channel
(direct/interm).
The reason for the increase in sales is the
growing support from financial advisers.
Although the total volume of adviser
business fell, the proportion they placed
through platforms rose by 5%, while flows
from other primary channels declined.
Business through platforms during the
quarter was underpinned by increased ISA
sales. Few fund managers now sell their
own ISAs as most IFAs prefer their clients
to have the greater range of choice offered
by platform-based wrappers. Sales of
platform-hosted personal pensions also
rose during the second quarter.
Top products in Q212
Direct/general investments
5,041.5m
ISAs
2,685.2m
Personal pensions
1,816.0 m
SIPPs
522.8m
Unit-linked bonds
343.4m
Investment bonds
269.1m
Rest
292.7m
Total
10,970.8m
Key data for platforms

Second quarter 2012
11.0bn
YTD 2012 sales
21.8bn
Q212 v Q112 (%)
1.6%
Q212 v Q211 (%)
1.8%
Share of total sales in 2011
40.0%
45.7%
Platform sales by underlying primary business channel

Financial advisers
7,146m
B2B platforms
1,168m
Wealth managers
Fund managers
1,156m
600m
B2C platforms/other 1
392m
Rest
509m
DIA
46.0%
New v switches in Q212
ISA
24.5%
PP
16.6%
Switches
37.2%
Newsales
62.8%
SIPP
Rest
Invbond ULbond 4.8%
2.7%
3.1%
2.5%
Top and bottom five sectors in Q212

Top five sectors
Bottom five sectors
Sterling Corporate Bond
893
European Smaller Companies
12
UK All Companies
829
Asia Pacific Including Japan
11
Sterling Strategic Bond
748
Japanese Smaller Companies
Mixed Investment 20-60% Shares
711
Protected / Guaranteed Funds
UK Equity Income
638
Europe Including UK
1. Wholesale channels shown here are generally those that do not yet provide data to Financial-Clarity or do not provide breakdowns of their data. L&P providers = L&P providers that do not provide a breakdown of sales. B2B platforms = platforms for intermediaries., B2C platforms/other= direct-to-consumer platforms, stockbrokers etc. See glossary
and notes to data on back page.
CHANNEL SNAPSHOT: LIFE AND PENSIONS

After a strong recovery in the first quarter,
flows through the L&P wholesale channel
fell back heavily in the second quarter.
Sales shrank to their lowest level since
2009. This sharp decline was partly due to
the fact that extra pension contributions
had been brought forward after rumours
that higher-rate tax- relief was to be
abolished in the budget. This shift left less
money available for pension contributions
in the second quarter.
The declines occurred across all major
primary distribution channels and all life
and pension product areas. Financial
adviser business was down most with sales
reducing by a half in the second quarter,
while personal pension sales fell 21%. This
situation underlines the shift of business
away from the wholesale L&P channel to
platforms which saw fund sales through
both financial adviser and personal
pensions increase in the second quarter.
Key data for L&Ps

Second quarter 2012
2.2bn
YTD 2012 sales
6.1bn
Q212 v Q112 (%)
-41.4%
Q212 v Q211 (%)
-27.3%
13.6%
12.8%
L&P sales by underlying primary business channel

Financial adviser
1,368m
EBC
309m
Wealth managers
249m
Unclassified
83m
B2C platforms/other1
74m
Rest
94m
Group personal pensions
782.0m
Personal pensions
590.1m
Offshore bonds
346.2m
Unit-linked bonds
192.9m
SIPPs
134.1m
Rest
198.6m
Total
2,243.9m
Pers
pension
26.3%
Grp pers
pension
34.9%
Offshr
bond
15.4%
UL bond
8.6%
Rest
8.9%
SIPP
6.0%
CHANNEL SNAPSHOT: DIRECT INTERMEDIARIES

Direct intermediary is business transacted
directly with fund managers as opposed to
indirect business through the platform and
L&P channels. After a temporary boost to
sales in the first quarter when investors
became more risk-on, direct business fell
back again in the second quarter, resuming
the downward trend of recent years.
Key data for direct intermediaries
Until around two years ago, this channel

had accounted for 50% or more of all
fund sales but business routed through
platforms has gradually moved ahead.
This development has mostly suited fund
managers as it has taken away some of
their admin costs and given them a wider
audience.
Almost all of the direct sales are pure
investment business nowadays, so it is
sensitive to market conditions. However
in the second quarter there was a modest
increase in the proportion of ISA wrapped
sales.
Second quarter 2012
8.9bn
YTD 2012 sales
19.8bn
Q212 v Q112 (%)
-17.1%
Q212 v Q211 (%)
-16.5%
46.4%
41.5%
Direct sales by underlying primary business channel

Fund managers 2
4,316
Life & pensions
1,842
B2C platforms/other 2
945
Wealth managers
890
Banks/building societies
461
Rest
495

8,830.7m
ISA
118.3m
Total
DIA
98.7%
ISA
1.3%

Top five sectors
UK All Companies
2,035
Bottom five sectors
North American Smaller Companies
North America
753
607
UK Equity Income
511
Specialist
504
Europe Including UK
2. Fund managers= mainly funds of funds and multi-manager activity. B2C platforms/other (direct-to-consumer platforms, stockbrokers etc) that do not yet provide data to
Financial-Clarity. L&P= direct purchase of funds via L&P products. See glossary and notes to data on back page.
CHANNEL SNAPSHOT: FUNDS OF FUNDS

Funds of funds are not a channel per se,
but they are an important source of
business for managers and are expected to
become more so in the future as a
consequence of outsourcing by advisers in
response to RDR. As a result, the data is
shown for comparison with other channel
trends.
They certainly bucked the general
downward trend in the second quarter
with flows rising by 9%. Based on year-todate figures, their market share is also
increasing relative to last year.
Sales through financial advisers rose by a
modest 3% quarter on quarter. The largest
increase of 23% was in sales via fund
managers themselves, though they remain
modest in total. However, this channel
could become increasingly important post
RDR. Funds of funds could be particularly
appealing to investors who do not want to
pay for financial advice.
Key data for funds of funds

Second quarter 2012
1.2bn
YTD 2012 sales
2.3bn
Q212 v Q112 (%)
9.0%
Q212 v Q211 (%)
-7.7%
4.6%
4.8%
FOF sales by underlying channel

Financial advisers
737m
Life & pensions3
107m
Banks/building societies
71m
Wealth managers
59m
Fund managers
58m
Rest
145m

591.6m
ISAs
408.9m
Personal pensions
98.4m
Investment bonds
40.0m
SIPPs
27.6m
Rest
9.7m
Total
1,176.3m
ISA
34.8%
PP
8.4% Invbond
3.4%
DIA
50.3%
Rest
0.8%
SIPP
2.3%

Top five sectors
Bottom five sectors
427
Short Term Money Market
1.058
Flexible Investment
206
Global Emerging Markets
0.239
131
Global Bonds
0.233
Global
61
Europe Excluding UK
0.054
21
Global Equity Income
0.005
3. B2B platforms that do not yet provide data to Financial-Clarity. B2C platforms/other (direct-to-consumer platforms, stockbrokers etc) that do not yet provide data to FinancialClarity. L&P= direct purchase of funds via L&P products. See glossary and notes to data on back page.
PRIMARY BUSINESS CHANNELS

In this section of the report we examine the sales trends in the
primary, investor-facing business channels which are generating
the flows to the wholesale distribution channels. Some of these
channels, such as IFAs, provide business to more than one
wholesale distributor. It should also be noted that the life and
pensions channel referred to in this section relates to sales
generated by insurance company staff.
Direct
business
(through fund
managers and
B2C platforms)
There was an average decline in sales of 13% across all primary

channels in the second quarter although some were more badly
affected than others. IFAs and wealth managers, which together
account for around half of total sales, accounted for a somewhat
smaller-than-average fall in business of around 11%. Despite
concerns about the deteriorating situation in the Eurozone and
the outlook for the UK economy, advisers were still encouraging
investors to take up their ISA allowances.
rose sharply in
the first
quarter
Historical trends by primary business channels (m) 5

IFAs
WMs
Direct/interm
L&P
Q309
4,794.1
2,610.1
2,626.9
2,475.1
926.2
466.1
960.6
244.8
432.6
Q409
6,110.5
2,928.9
3,567.1
2,673.5
1,340.9
667.8
868.7
407.4
551.0
Q110
6,702.6
3,018.6
3,292.4
2,456.7
1,395.7
844.8
748.5
361.1
394.7
Q210
7,145.8
3,004.7
4,843.6
2,706.8
1,525.6
893.7
636.8
421.8
467.4
Q310
6,950.5
2,852.8
3,719.6
2,746.5
1,277.1
878.0
1,542.4
365.6
436.2
Q410
7,569.1
3,258.1
4,214.4
2,911.8
1,484.4
982.3
1,428.3
578.8
505.5
Q111
9,774.8
3,404.0
4,722.3
2,809.3
1,592.4
1,245.2
1,213.0
576.6
459.6
Q211
9,379.8
3,039.2
4,477.6
2,430.6
1,595.2
1,360.1
1,263.6
558.4
462.9
Q311
8,387.1
2,968.2
4,025.8
2,751.7
1,676.9
1,255.2
1,027.8
513.5
572.9
Q411
8,091.0
2,088.5
3,272.2
2,531.3
1,109.7
998.5
851.2
500.3
400.8
Q112
9,887.4
2,579.2
5,209.4
3,187.4
1,658.5
1,256.8
683.7
420.0
548.0
Q212
8,763.0
2,295.3
4,946.0
2,053.1
1,403.6
1,192.5
584.7
417.3
508.3
Quarter
B2C Platforms B2B Platforms
Banks
EBCs
Uncl
QOQ sales by primary channel (m)

10,000
Q112
8,000
Q212
6,000
4,000
2,000
0
IFA
WM
FM
L&P
Oth
Platform
Bank
EBC
Uncl
5. Wholesale channels shown here are generally those that do not provide data to Financial-Clarity or do not provide full breakdowns of their data. Specifically: B2B platforms =
platforms that do not yet contribute data and so primary channels are not known. L&P = L&P data that is not disaggregated into other channels. Unclassified = distributors that are
not easily classified in the primary channels.
Leading primary business channel in each wholesale channel
Q212
Leading primary business channel
Platforms
L&P
Direct intermediaries
IFAs
IFAs
FM
Gross sales
7.1bn
1.4bn
4.3bn
Market share of each channel
61.1%
61.0%
48.2%
However, compared to the same quarter last year, wealth manager

business was considerably lower. It was down 25% on the second
quarter of 2011, compared to a fall of 6.6% in IFA business. Since last
year, wealth managers have become increasingly cautious, or have been
using alternative products for their clients. Preparing for RDR is also a
major concern.
The largest fall in fund sales in the second quarter was in the life and
pension channel. This is perhaps not surprising given the time of year,
and the fact that a record amount of business had gone through this
channel in the first quarter as the tax year came to an end. It had been
boosted by the threat that higher-rate tax-relief on pensions might be
removed in the Budget, meaning that some contributions were
undoubtedly brought forward and less was available for investment in
the second quarter. As a result, sales via the life and pensions channel
fell to their lowest level since 2008 according to Matrix data.
Employee benefit consultant sales saw only a modest reduction of less
than 1%. This business tends to be less sensitive to seasonal and market
factors as much of it relates to regular pension contributions. However it
has been reducing steadily since the end of 2010, reflecting the squeeze
on incomes and consequently a declining ability to save.
Fund manager business also held up well with a reduction of just 5%.
These sales are underpinned by the increased proliferation of multimanager funds that are being offered by a growing variety of providers.
Platform business also held up well during the quarter declining by just
5%. Investors via platforms know they have considerable flexibility and
choice which helps to encourage flows.
By contrast, sales through banks continued to fall. They are more than
50% lower than like-for-like sales in 2011 and there has been a longterm downward trend in sales since mid 2010. Banks have been sidetracked by many factors including the ongoing ripple effects of the global
financial crisis, as well as regulation and the approach of RDR, which
have curtailed their ability to sell funds. Sales forces are being
reorganised with Barclays leading the way and deciding to close its
financial advice arm at the beginning of 2011.The latest bank to
announce a reduction in its sales force and switch to a tied service is
Royal Bank of Scotland. Only Santander has managed to buck the trend
with the sales of its latest generation of multi-manager funds.
10
PRIMARY BUSINESS: IFA SNAPSHOT

Expected in Q312:
Key data for IFAs

Second quarter 2012
8.8bn
YTD 2012 sales
18.7bn
Q212 v Q112 (%)
-11.4%
Q212 v Q211 (%)
-6.4%
33.9%
39.3%
Top five IFA firms in Q212
Numerous factors point to an ongoing downturn in

IFA flows. Getting ready for RDR is one factor, but
flows will also be dampened by the summer holiday season, the Olympics and the ongoing Eurozone crisis.
Sesame
236m
2,371m
Tenetconnect
204m
ISAs
2,263m
Skipton
170m
Personal pensions
2,147m
Positive Solutions
146m
Financial
108m
Rest
1,042m
9.9%
Total
8,763m
Top five as % of total:
SIPPs
534m
Group personal pensions
405m

Top five sectors
Bottom five sectors
529
UK All Companies
517
509
Personal Pensions
457
UK Equity Income
407
Europe Including UK
Rising sectors (qtr on qtr)

Sector
Falling sectors (qtr on qtr)

% change in sales
v last quarter
113.4
Sector
% change in sales
v last quarter
Protected / guaranteed funds
-49.9
16.9
Personal pensions
-37.7
Money Market
14.7
-36.1
Sterling High Yield
13.1
Specialist
-26.0
China/Greater China
-25.3
All sectors
-11.4

All sectors
7.3
-11.4
11
COMMENT
The decline in IFA business in the second quarter this year was not completely
unexpected, even though in past years fund sales through this channel have
tended to be maintained or even increased in the second quarter. This is partly
due to the fact that IFAs tend to encourage investors to take up their new
annual ISA allowance early in the new tax year to maximise the tax benefits.
And, indeed, ISA sales through IFAs were 11% higher in the second quarter this
year compared to the first quarter.
However, personal pension business was down. It was the top source of fund
sales through IFAs in the first quarter as investors brought forward their
contributions prompted by concerns about the possible abolition of higher-rate
tax-relief in the Budget. Consequently sales fell back by 20% in the second
quarter. Sales within SIPPs also declined by 25%.
The best-selling sector funds among IFAs during the quarter were Mixed
Investment 20%-60% Shares. Advisers renewed worries about the Eurozone
and the state of the UK economy encouraged them to recommend these more
cautious funds ahead of UK All Companies funds which had led the field the
previous quarter. Sales of Corporate Bond and Strategic Bond funds also rose.
However the fixed income sector, which saw the largest increase during the
quarter with sales rising by 13%, was High Yield Bond. These funds are often
regarded as a half-way house between equity and conventional fixed income
funds.
Advisers
renewed worries
about the
Eurozone and the
UK economy led
them to more
cautious
recommendations
than the previous
quarter
But some IFAs clearly felt an even more cautious approach was advisable and
as a result they opted to put clients investments into money market and shortterm money market funds which were two of the sectors that saw the
strongest percentage increases in flows during the quarter. At the other end of
the spectrum, support for China continued to wane with sales of these funds
down by 25%.
IFA NEWS
Sesame Bankhall Group, which
topped the list of IFA fund
distributors in the second quarter,
has recently announced the launch
of a new joint venture with
Henderson, called Optimum
Investment Management. Optimum
is offering four multi-manager
portfolio funds which it says can be
combined by advisers to meet
different risk appetites.
Hendersons multi-manager team
will choose the funds to populate
the portfolios from across the
whole market. The funds will be
available through SBG One, its inhouse version of AXA Elevates

wrap platform, as well as on other
platforms.
Royal Bank of Scotland has
confirmed that its IFA arm will
become restricted from October. It
will sell products from the RBS
Group and a set of third-party
providers.
Under the new regime, its advisers
will be called specialist financial
advice managers. Meanwhile, Sanlam
UK is building up its advisory
division with further IFA acquisitions.

All firms will be rebranded by 2017.
Overall, while the implementation
of RDR appears to be having a
more limited impact on IFA
numbers than originally anticipated,
research among advisers by Tenet
indicates it is regulatory costs that
are likely to have a greater impact.
Of those canvassed, 86% stated that
they feared the cost of regulation
will force up to 30% of advisers out
of the market over the next three
years.
12
PRIMARY BUSINESS: WEALTH MANAGER SNAPSHOT

Expected in Q312:
Key data for WMs

Second quarter 2012
2.3bn
YTD 2012 sales
4.9bn
Q212 v Q112 (%)
-11.0%
Q212 v Q211 (%)
-24.5%
14.0%
10.3%
Top five wealth manager firms in Q212
Caution has characterised wealth manager

behaviour, and given the economic outlook, will
continue to do so in Q312. Structured products
may play a bigger part in their investments to the
detriment of funds.
Brewin Dolphin
213.4m
Quilter & Co
162.0m
ISAs
273m
UBS
119.9m
Offshore bonds
175m
AWD Chase de Vere
108.1m
Personal pensions
137m
C Hoare & Co
1,444m
Unit-linked bond
82m
78.2m
Rest
185m
33.5%
Total
2,295m

Top five sectors
Bottom five sectors
UK All Companies
217
China/Greater China
1.04
201
1.03
North America
190
0.24
UK Equity Income
145
0.13
134
Europe Including UK
0.10

Sector
Personal Pensions

% change in sales
v last quarter
3,098.8
Sector
% change in sales
v last quarter
-84.1
99.8
Europe Including UK
-67.9
83.3
China/Greater China
-64.5
UK Gilts
80.0
Japan
-64.4
Money Market
37.3
-63.1
All sectors
-11.0
All sectors
-11.0
13
COMMENT
The revival in wealth manager business seen in the first quarter of the year proved
short-lived with sales falling back again in the second quarter. It means the wealth
managers share of fund business has once again declined and now stands at 10%
compared with 15% in 2009. It appears that wealth managers are still being
cautious about committing client money to the markets and are choosing
alternatives such as structured products instead.
The bulk of wealth manager fund purchases are direct, with funds being used in
the construction of investment portfolios for clients. However, the proportion
of direct investment fell from 68% to 63% in the second quarter. The beginning
of the tax year had heralded new opportunities for tax planning and more
purchases were made via wrappers with ISA sales rising by 8% and sales via
offshore bonds increasing by 6%.
The Global
Emerging
Markets
sector was a
Wealth managers first choices of funds were mainstream UK All Companies and
Sterling Corporate Bond funds. However, they also remained relatively bullish
about the outlook for North American equities. This sector, which had been
the top-seller in the first quarter, remained among the top five, although sales
were lower in the second quarter.
new entrant
in wealth
managers top
five sectors for
A new entry among the best-selling sectors was Global Emerging Markets; it was
also one of those which saw the most rapid rise in sales in the second quarter.
Other strong increases were seen in the sales of North American Smaller
Companies funds and UK Gilt funds.
the quarter
A look at the rising and falling sectors sometimes reveals how wealth managers
are setting the trend with their fund purchases. In the first quarter, wealth
managers had sharply increased their purchases of Japan and Japanese Smaller
Companies funds. In the second quarter, sales of Japanese Smaller Companies
funds via IFAs grew. However, by then, wealth managers enthusiasm had cooled
and the Japan sectors were among those that saw the largest reductions in sales.
WEALTH MANAGER NEWS

Concerns about the effect of RDR
on wealth managers fees are
continuing to grow. Greater
transparency is expected to result in
downward pressure on fees even
though costs are rising. Many firms
have indicated that they are sticking
to their current rates for the time
being.
However, if advisers outsource their
investment business to wealth
managers, this will involve feesharing which could affect their
margins. Wealth managers may
therefore put more effort into
attracting direct clients to help

protect their margins.
An example of such a move is
Brewin Dolphins announcement
that it is to cater for smaller
investors by offering a managed
portfolio service, designed to meet
the needs of clients with
investments of between 10,000
and 150,000. Five risk profiles will
be offered. The portfolios will invest
mainly in collectives with some
exposure to passives. Clients will be
charged a fee of 1.2% plus VAT.
There is also talk of more

convergence
between
wealth
managers and top-end IFAs,
especially those that are already fee
-based. Many of these IFAs have
started to move into discretionary
management in recent years.
A recent report from Compeer
found that many wealth managers
had found it difficult to add value
for clients over the past five years.
The average discretionary manager
had only just managed to beat the
FTSE/Apcims Balanced index before
the deduction of fees .
14
PRIMARY BUSINESS: D2C/OTHER

Expected in Q312:
Key data for D2C/Other

Second quarter 2012
1.4bn
YTD 2012 sales
3.1bn
Q212 v Q112 (%)
-15.4%
Q212 v Q211 (%)
-12.0%
7.3%
6.5%
Top five D2C platforms in Q212
Confidence weakened in the second quarter and

with no change in the economic outlook for Q3,
flows are likely to remain below par in the third
quarter. Nonetheless, the summers stock-market
rally may encourage some investors into funds.
Hargreaves Lansdown
469m
Barclays Stockbrokers
35m
Chelsea Financial Services
32m
Cavendish Online
21m
TD Direct Investing (Europe)
18m
41.0%
ISAs
1,213m
101m
Offshore bonds
29m
Personal pensions
22m
Unit-linked bonds
13m
Rest
23m
Total
1,400m

Top five sectors
Bottom five sectors
UK Equity Income
184
1.90
UK All Companies
132
1.70
120
0.43
117
Europe Including UK
0.31
0.06
Asia Pacific Excluding Japan
94

Sector
UK Index Linked Gilts

% change in sales
v last quarter
106.0
Sector
% change in sales
v last quarter
-86.8
95.3
-69.5
66.4
Flexible Investment
-52.5
Absolute Return
45.9
Europe Including UK
-51.4
Money Market
41.2
-44.0
All sectors
-15.4
All sectors
-15.4
15
COMMENT
Weakening confidence among investors saw non-advised business drop back
by somewhat more than average in the second quarter with fund sales
through this channel falling by 15%. However, business remained higher than
in the fourth quarter of 2011 when sentiment had been particularly bleak.
IMA data shows that retail investors were still relatively enthusiastic about
funds in April but that net flows fell significantly in June.
Self-directed investors are generally less likely to buy funds through wrappers
than advised clients. However, there was an increase in wrapper sales in the
second quarter with the proportion of direct investment falling from 93% to
87% as a result of rising sales through ISAs, Offshore Bonds and Personal
Pensions.
Despite the overall reduction in sales, those people who were prepared to
invest for themselves were more likely to choose equity over bond funds.
Their top choice was UK Equity Income funds, rather than Sterling Corporate
Bond funds as it had been in the first quarter, while UK All Companies funds
overtook Sterling Strategic Bond funds on investors buy lists.
Indeed sales of Sterling Corporate Bond funds fell by 44%. However,
execution-only investors did not ignore safer options altogether. On the
contrary, some of the strongest increases in sales were in the more cautious
sectors. Flows into UK Index Linked Gilt funds rose by over 100% despite
the increasing price of these securities. Sales of Absolute Return funds also
increased by 46%, making it one of the ten most popular sectors among
direct investors.
Despite the
overall
reduction in
sales, investors
were still more
likely to choose
equity over
bond funds .
Some investors were even more cautious and sales of Money Market funds
also rose. Their proclivity for playing it safe was also shown by a fall in the
sales of Flexible Investment funds, while flows into Mixed Investment 0-35%
increased, though the amounts remained modest.
D2C NEWS
Recently published research by
Deloitte based on a survey of
2,000 people found that 84% are
unaware of RDR and that they will
be required to pay a fee for advice
in future. More than half (54%) said
that would not pay a fee, while
47% said they would be likely to
reduce the number of times they
use financial advisers if charged a
fee of between 400-600 or 3%
of invested assets. The survey
found that bank customers are five
times as likely (60%) as IFAs (12%)

customers to reject the idea of
paying fees for advice.
To cater for those advisers with
clients who cant or wont pay,
AXA Wealth has recently launched
AXA Self Investor. It will provide
self-directed clients with the choice
of around 170 funds include a
favourites range selected by the
Architas investment team. Six lowcost, multi-asset risk-rated passive
funds from Architas will also be
available. Minimum investment will

be 2,000, or 200 per month.
Using the Elevate platform, AXA
Self Investor is intended to help
advisers remain indirectly engaged
with their clients. There will be a
co-branded website and a service
providing marketing support and
the production of literature on the
advisers behalf. A UK-based
customer support team will also be
available.
16
PRODUCTS AND ASSET CLASSES
PRODUCT CLASSES AND PRODUCTS

Direct investment and sales of funds through most product
wrappers declined during the second quarter in line with the
general trend. But there were two exceptions; ISAs and
group personal pensions both saw increased flows. ISA sales
rose by 13% and group personal pensions were up 7%.
Qtr-on-qtr flows by product class (m)

21,000
14,000
The second quarter has now become the peak period for
ISA sales through a combination of last-minute investment in
the final few days of the old tax year and early bird investors
using up their new annual allowance. Although this years
ISA sales were down on the same period last year, despite
the inflation-linked increase in the annual ISA allowance to
11,280 for 2012/13, many investors were clearly prepared
to overlook economic uncertainties to take advantage of
these popular investment vehicles.
The pattern was reversed with sales through pension
wrappers, where business tends to be more concentrated in
the first quarter. Sipp sales saw the sharpest reduction in the
second quarter, they were down by 23%, while fund sales
through personal pensions decreased by 19%. As previously
mentioned, the fall partly resulted from contributions being
brought forward to the first quarter by fears that higher-rate
tax may be abolished in the Budget.
Group personal pension fund business, however, went
against the trend and was higher in the second quarter,
reflecting the approaching start of auto-enrolment in
October. At the same time the dominance of Life and
Pension providers as the main wholesale channel for this
business declined from 100% to 93%. In the individual
pension arena, Platforms increased their wholesale share
from 60% to 73%.
7,000
0
Group
Pension
Q112
Individual
Pension
Inv&
Savings
Q212
Overall product sales (Qtr-on-qtr) m

Top products
Q112
Q212
Direct/general
16,388.5
13,906.7
ISAs
2,504.8
2,824.5
Personal pensions
2,959.1
2,406.1
Grp personal pensions
728.2
782.0
SIPPs
850.0
656.9
Unit-linked bonds
808.3
536.3
Offshore bonds
562.7
530.8
Rest
629.0
520.0
25,431
22,163
Leading channels in product classes
Q212
Wholesale channel
Investment & Savings
Individual pension
Group pension
Direct/Interm
Platforms
L&Ps
Sales
8.9bn
2.3bn
817.7m
Market share
49.1%
72.9%
92.8%
IFA
IFA
IFA
Sales
5.6bn
2.7bn
480.1m
Market share
30.9%
87.0%
54.5%
Primary business channel
17
PRODUCTS AND ASSET CLASSES
ASSET CLASSES AND SECTORS

As an asset class, fixed income was once again the top choice
for investors in the second quarter which was hardly surprising
in view of the uncertainty and decreasing interest rates on
savings accounts. Mixed asset funds were the next most
favoured group while equity funds suffered net redemptions
during the quarter according to IMA statistics.
Top and bottom sectors in Q212

Top five
In terms of sector buying patterns, there was more

diversification in the second quarter with the dominance of
the top five sectors declining somewhat from 45% of sales in
the first quarter to 35% in second. There were also two
changes among the top five sectors, although the two leading
sectors remained the same. UK All Companies funds
continued to lead the field as a key component in most
investors and portfolio managers asset allocations. Indeed,
gross sales of these funds were up by more than a third on
the first quarter.
Mainstream Sterling Corporate Bond was the second most
popular sector and Sterling Strategic Bond also made it into
the top five, although sales in both sectors were down on the
previous quarter. The fixed income sector that saw the
sharpest rise in sales was UK Index Linked Gilt, while sales of
conventional UK Gilt funds also declined. Besides Sterling
Corporate Bond, North American replaced Global and Global
Bonds in the top five selling sectors. The latter were both
among those sectors that saw the most marked reduction,
with flows into Global funds down 60% and Global Bond fund
sales down 42%. North American funds, on the other hand,
have come back into favour thanks to the improving
economic outlook there.
UK All Companies
2,863
1,500
North America
1,258
UK Equity Income
1,149
1,052
Bottom five
15
Personal Pensions
13
11
Europe Including UK
Top 5 sectors v rest in Q212
Rest
64.7%
Topfive
sectors
35.3%
The top selling mixed asset sector is 20-60% with sales of

almost double the flows of the 40-85% sector, where in turn
the sales were roughly double the sales of Flexible funds.
Sector

% change in sales
v last quarter
Sector
% change in sales
v last quarter
Personal Pensions
45.4
Global
-59.5
45.2
UK Gilts
-42.5
UK All Companies
38.2
Global Bonds
-41.5
UK Equity & Bond Income
23.3
-32.5
UK Index Linked Gilts
20.8
-28.8
All sectors
-12.8
All sectors
-12.8
18
NOTES
DISTRIBUTION AND TERMINOLOGY EXPLAINED

Fund distribution landscape in the UK
Fundmanagers(akaDirect/Interm)
Wholesale
channels
L&P
Primary
business
channels
IFAs
Platforms
WMs
L&Ps
B2C
platforms
Banks
Investors
Twenty years ago doing business in

the UK was relatively straightforward;
investors went to financial advisers
who placed their orders directly with
fund managers and/or life & pension
providers (L&Ps). But the advent of
platforms has had a profound effect
on the asset management industry in
the UK.
Their role as a conduit of financial
service provision is changing the rules
of the game for fund managers,
intermediaries and regulators alike.
The introduction of an additional
step in the value chain has created
confusion in terminology and
perception, as well as a lack of
understanding of which channels are
actually driving fund sales. This report
aims to shed light on these very
issues.
Financial-Clarity data is organised

into two layers of data. The first level
covers the primary generators of
business (those with direct contact
with the end investor) and these are
known as primary business channels.
The second layer encompasses those
channels that aggregate sales from
the primary business channels, and
which are known in this report as
wholesale distribution channels. They
include life and pension groups,
platforms and also fund managers
(direct intermediary) who still attract
a significant amount of business
direct from intermediaries. Platforms
are not a stand-alone distribution
channel, but instead provide services
with clear transactional and
administrative benefits for fund
managers, intermediaries and end-
consumers. Equally, life and pension

providers are nowadays more likely
to provide products that wrap thirdparty funds and so also play an
aggregating role in distribution.
Having said that, their buying power
and influence has a significant impact
on fund manager activity, hence their
inclusion in this report.
Apart from the B2C platform
channel, direct consumer to fund
manager business is not captured in
the Financial-Clarity database.
19
NOTES
This report is organised to provide insight and analysis

on both the wholesale distribution channels and
primary business channels, since these are the primary
drivers of sales in the UK fund industry.
Platforms are not

a stand-alone
distribution
But in addition to channel analysis, there is also

explanation and insight into the products, funds and
sectors being transacted across the Financial-Clarity
universe.
channel; they
provide services
with clear
Only fund-based products are covered in this report,

though the Financial-Clarity database also includes
other L&P products. These fund-based products are
categorised into three different product classes:
investment & savings, individual pensions and group
pensions. Beneath the product class and product
layer, there is also analysis by asset class and sectors,
as defined by the Investment Management Association
(IMA).
transactional and
administrative
benefits for fund
managers,
intermediaries and
The diagram below sets out how products are

categorised in the Financial-Clarity database.
end-consumers
The product mix
Investment&
Sa vi ngs
Product
cl a sses
Products
As s etcl asses
Sectors
Direct investment account

Distributionbond
Endowment policy
Guarantd investment bond

ISAs
Offshoreinvestment bond
Offshorepersonal bond
Unitlinked bond
Ca s h
Indivi dual
pensions
Personal pension
SIPP
Stakeholder pension
Equity
Group
pensions
UKallcompanies
UKEquityIncome
etc
Fixed
i ncome
Executive pensionplan
Groupmoney purchase
scheme
SSAS
Trustee investment plan
Mixed
As s ets
Cautiousmgd
Balancedmgd
Activemgd
Specialist
Absreturn
etc
20
NOTES
Notes to data
1. The figures used in this report are actual gross flows of fund-based
products in the UK.
2. Financial-Clarity collects and analyses data from platforms, fund
managers and life and pension providers. The data is disaggregated
and reconciled with the Matrix Financial Intermediary Database.
3. Between 5% and 9% of sales are potentially double-counted. In Q212
this equated to approximately 1.9bn: 800m of L&P purchases by
L&P companies which contribute to Financial-Clarity and a further
1.1bn of fund manager purchases by fund managers that contribute to
Financial-Clarity.
4. Coverage: fund manager coverage is estimated to represent 85% of
total fund manager activity in the UK. Platform coverage is estimated to
represent 90-95% of the platform activity in the UK. Life and pension
provider coverage is estimated to represent 50-60% of the L&P activity
in the UK.
Glossary
IFAs: independent financial advisers.
WMs: wealth managers.
EBC: employee benefit consultants.
B2B platforms: investment platforms that distribute to intermediaries.
B2C platforms: investment platforms that distribute direct to consumers.
Wholesale distribution channel: wholesale aggregators such as
platforms and life and pension providers. Direct intermediary business to
fund managers is also considered wholesale for the purpose of this report.
Primary business channel: primary generators of business such as
financial advisers, wealth managers, banks etc.
Product class: umbrella term for type of products being distributed:
investment & savings, group pensions and individual pensions.
Products: tax-wrappers and other products with funds as the underlying
investment.
About this publication

Jointly published by Matrix Solutions and Fundscape. All rights
reserved.
Matrix Solutions, 55 New Oxford St, London WC1A 1BS
Tel +44 (0)20 7074 1200, Email: info@matrixsolutions.co.uk
Fundscape, 109 Conway Road, London N14 7BH
Tel +44 (0)20 7627 1145, Email: info@fundscape.co.uk
Warning:
This publication has been written for fund industry professionals. It is intended for their general guidance and interest and
does not constitute professional advice. All views expressed are those of the publishers but no representation or warranties
are given on the accuracy or completeness of the information included. Matrix Solutions and Fundscape accept no liability for
the consequences of any reader acting or refraining to act on information in this publication, or for any decisions based on it.

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Q212 ISSUE AUG12

Primary business channels

Products and asset classes

global economy in general, investors became more

position but other intermediaries are closing the gap.

1.6% as financial advisers pushed more business in

Second quarter 2012 gross sales

Q212 v Q112 (%)

Q212 v Q211 (%)

Second quarter 2012 net sales

Direct intermediary (gross)

Life and pension providers (gross)

Life & Pensions (wholesale and primary business

channels) suffered from downturn in pension business

Renewed uncertainty about the Eurozone and the state of the UK

Sales by wholesale channel (bn)

Q212 v Q112 (m)

2011 YTD 2012 YTD

Market share trends (%)

Market share in Q212 (%)

Fundscape LLP and Matrix-Data Ltd

J P Morgan Chase Bank

AWD Chase de Vere

AWD Chase de Vere

MPS Mortgage Services

MPS Mortgage Services

equity firm Bridgepoint, has been

called Clear, and has its own asset

CHANNEL SNAPSHOT: PLATFORMS

Key data for platforms

YTD 2012 sales

Q212 v Q112 (%)

Q212 v Q211 (%)

Share of total sales in 2011

Share of total sales in 2012

Platform sales by underlying primary business channel

Top products in Q212

New v switches in Q212

Top and bottom five sectors in Q212

Bottom five sectors

Sterling Corporate Bond

European Smaller Companies

Asia Pacific Including Japan

Sterling Strategic Bond

Japanese Smaller Companies

Mixed Investment 20-60% Shares

Protected / Guaranteed Funds

CHANNEL SNAPSHOT: LIFE AND PENSIONS

Key data for L&Ps

YTD 2012 sales

Q212 v Q112 (%)

Q212 v Q211 (%)

Share of total sales in 2011

Share of total sales in 2012

L&P sales by underlying primary business channel

Top products in Q212

Top products in Q212

Group personal pensions

Fundscape LLP and Matrix-Data Ltd

CHANNEL SNAPSHOT: DIRECT INTERMEDIARIES

Key data for direct intermediaries

Until around two years ago, this channel

Second quarter 2012

YTD 2012 sales