There is a looming challenge facing UK retail fund managers as it becomes apparent future growth in the sector will need to be driven by a more direct-to-consumer business model.

Some fund managers are not overly worried just yet as many feel the impending departure of some financial advisers out of the market, largely a result of Britain’s Retail Distribution Review (RDR), will actually benefit them.

Some managers feel the cost of servicing fewer but more likely higher asset placing advisers will make their businesses more streamlined as many commission-driven, lower investment balance or less frequently engaging advisers exit the market to move on to new things.

This may refine the work demands on the distribution teams in the short term as they are able to increase their focus on a smaller core of adviser clients, however it doesn’t solve the long term growth challenges for the sector and the fact financial advice is dismissed as a required service by a significant proportion of the active retail investor market.

In the active investor market in the UK, only 16.6% of the market has a dedicated financial adviser with a further 19.3% engaging with an adviser intermittently (half of these only use advisers in a transactional capacity).

Most interestingly, one third of active UK advisers (33.2%) have previously used an adviser but no longer do, while a similar proportion (30.9%) have never engaged a planner.

This indicates a clear limitation for businesses focussing exclusively on distributing their products through financial advisers.

However the challenge, not to mention potential cost, of adopting a B2C business model over a B2B model is much bigger.

Targeting an audience of 20,000 to 25,000 advisers versus one 1,000 times bigger – around 20 million active investors – is a whole new ball game.

Tie-ups with bank assurers would appear to be the natural strategy for UK retail fund managers but not is necessarily as lucrative as it sounds.

Banks are generally ill-prepared for advising customers on wealth products, beyond spruiking their own in-house ISAs.

Meanwhile, competition in the UK banking market is fierce and businesses in the sector are primarily focussed on cross-selling their own products to consumers.

Therefore there may be sense in side-stepping the banks and looking at some of the bite size niche markets within the broader market of the UK’s 20 million, give or take, investors.

Adopting a more grass-roots approach – one which doesn’t involve elephant-gun style expensive national advertising campaigns – through strategic partnerships and alliances with certain consumer organisations and entities could in fact be more lucrative from a return-on-investment point of view than a nationwide tie up with a large financial institution.

Beyond that, there are multiple channels available in 2010 for groups to undertake guerrilla marketing campaigns to raise product and brand awareness for a relatively low outgoing costs.

This would imply it’s only the creative limitations of the funds management groups themselves holding businesses back.

Furthermore, and it may sound like a broken record, the power of social media through the internet is only just scratching the surface.

So if you’re a marketing director of a major UK funds management group, perhaps it’s time to consider the possibility that becoming a somebody in consumer brand-land doesn’t involve forking out millions of pounds in largely wasted TV and newspaper advertising – it could just mean that the right idea hasn’t sprung to mind yet to pique the nation’s imagination.

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