At Platforum, we are often asked whether we believe assets on retail adviser platforms will continue to grow. The simple answer is “yes”. The most important reason is rising stock market prices.
But some people tell us that they suspect that the proportion of assets going onto platform will decline partly because of regulatory pressure to avoid unnecessary double charging. The rise of multi-manager funds and packaged pension solutions arguably renders the use of platforms less necessary for lower-net worth clients. The cut in the pension lifetime allowance and the potential for flat rate tax relief on pensions are also factors.
Tax-driven investment strategies other than pensions, such as off-shore bonds, VCTs and EISs may see rising demand. The need for such products and strategies is being driven by such recent tax changes as the changes to savings income, the introduction of the dividend tax and above all the lower lifetime allowance. In many cases, such products, typically long-term investments, might be better held off-platform to avoid on-going platform charges.
So what makes us so sure about the rise of platform assets?
Time for a shameless plug … Platforum is conducting research on demand for tax-driven investment strategies. We are hosting a roundtable on 28th September for firms interested in sponsoring the research. Please drop me a line if you are interested in attending (and sponsoring). And for financial advisers focused on ultra high net worth investors, we welcome your views.
The most important macro reason favouring platform use by advisers is the continued adviser domination of the retail investment market, especially among higher net worth clients.
And advisers are increasingly using platforms. Our calculations (based on Matrix data) suggest that gross sales on platform increased 34% from 2013 to 2015, compared to a slight decline (less than 1%) in gross sales off-platform over the same period.
Other macro factors include:
- Rise of vertically integrated business models using platforms as core to the proposition
- Increase in the number of restricted single-platform adviser firms
- Increased use by providers to retain legacy business
- Pension assets staying on platform longer and consolidation of DC pension assets post-pension freedoms
- Platforms can help providers with meeting their requirements to sell appropriate products to consumers by letting them have valuable management information (as required by MiFID II)
The micro issues favouring platform use include:
- Platforms make fee charging easier for advisers, especially for larger clients using several products
- Platforms also usually make it easier for advisers to offer a better service to clients and allow advisers to hire and fire asset managers and DFMs more easily
Factors favouring off-platform use by advisers include:
- FCA pressure to recommend off-platform solutions especially where they are significantly cheaper
- Advisers offering services to lower value customers
- Increased use of specialist off-platform products and categories
- Poor returns offered by platforms on cash deposits
On balance, we believe platforms will continue to grow. Although the rapid rise of recent years is behind us, we think incremental growth should continue for the medium term.
What other factors will influence the use of platforms? The list above is hardly exhaustive. Please share your views. And do let me know if you are interested in sponsoring our research on tax driven investment strategies — whether they are held on- or off-platform!