Are there any investment platforms left that aren’t up for sale? One could be excused for thinking that a quizzical faint-heartedness has struck the industry’s leaders, heads of adviser platforms in particular.
Investment platforms are the preferred route to market for financial advisers and investors, and we expect platforms to remain the way forward. While it certainly isn’t front-page news that platforms simply as “transaction engines” are dead, there is still plenty of life left in them as a conduit for consumers and IFAs to manage and access investment options. In fact, we see several models emerging.
There are the vertically integrated businesses that have acquired bits of the value chain to boost profitability. Then, there are those that pursue horizontal integration using the same platform for various audiences. This could be the likes of Aegon with the same platform being used across workplace, D2C and adviser assets, or those with both institutional and retail businesses. Finally, there are the independents with loyal followings and a laser focus (think Nucleus and Transact).
As we’ve often stated, we don’t expect to see consolidation in the adviser platform market for at least the next two to three years. Who would buy them? They are low-margin businesses in a crowded market. There is also the question of what one is buying. Is one buying a client base (with no loyalty to the acquirer)? Or, is it the technology (but most outsource the back-end and those who don’t often wish they did)? At the prices being floated, we just don’t see any moves towards consolidation yet.
That said, there has already been consolidation at the back-end. Many platforms have moved off of proprietary systems to the likes of FNZ and Bravura. We estimate that over £120bn in assets are in motion, with Old Mutual Wealth, FundsNetwork, Ascentric, Alliance Trust Savings and Barclays Stockbrokers all re-platforming in the coming months. We hope Cofunds and parent L&G will also take the plunge. (Though the rumoured £125m bill for a much-needed upgrade is not inconsequential.) The decision to re-platform is not taken lightly — nor frequently. This is a once in a decade shift in assets.
Why is this important? Platforms running the same back-end technology should find it easier to integrate because of their shared functionality. So two to three years down the road we might see firms running the same back-end look to merge. Also, it shows that platforms are focussing increasingly on service — and investment options to differentiate their offerings — over and above the back end processing. Finally, advisers ought to pay attention to the back-end support as too much concentration on too few technology platforms can leave businesses exposed.
So where will growth come from in the platform market? Let’s be honest: much of the growth over the past few years has been from off-platform assets moving on-platform. In the coming years, fresh growth will come from DFM assets moving on platform and a rise in drawdown assets, as retirees take advantage of the pension freedoms.
We also expect to see a rise in workplace savings on platforms, much of which will eventually end up on retail platforms in drawdown. We have been out speaking with workplace savings providers over the past few weeks and there are some good efforts in place to drive employee engagement and to support decision making at retirement.
There are digital tools that one might expect (eg, calculators and even some robo advice propositions). Hargreaves Lansdown, a big player in both D2C and workplace is testing the waters for a low-cost robo solution. But there are also the more traditional – and arguably more effective – in-person seminars and clinics offered to those nearing retirement.
Context is everything. As retail investors creep towards their retirement parties, many are looking for solutions to help them make decisions in a bafflingly complex environment. At Platforum, we see a big opportunity for financial advisers to offer this support pre-retirement. However, in our most recent survey of employee benefits consultants, corporate advisers and employers, the consensus is that employers will take on a much bigger role in educating staff for retirement in the workplace – not financial advisers.
While the employer should facilitate this support, we think advisers – and in particular corporate advisers — have a massive opportunity to grow their businesses and to find some very desirable clients through the workplace. This can be by offering point-in-time advice and automated investing solutions to members, or more comprehensive financial-planning advice to higher earners. Platforms that pull together workplace and personal financial information will be crucial supports for success – though not the main drivers.