This week Heather Hopkins (@heatherahopkins), Head of Research at Platforum, reflects on a decade of changes within the retail investment industry.
At Platforum, we’ve been studying the retail investment industry for more than a decade. The changes have been immense. Summer is a good time to reflect, so allow me to indulge in a little reflection on recent trends that all point towards more muscular competition for everyone.
Three themes in particular underscore how the business is changing: the decline of the big three fund supermarkets, the rise of vertical integration and platform back-end technology consolidation.
Decline of the big three fund supermarkets
The three original fund supermarkets (Cofunds, FundsNetwork and Old Mutual Group, née Skandia) have long dominated the adviser platform market. However the composition of the market is shifting, in particular with the rise of life company-owned platforms. The three fund supermarkets saw their collective assets fall below 50% market share among adviser platforms in Q1 for the first time.
To be sure, the three biggest adviser platforms still enjoy growth – and in pound terms, the growth is impressive. However, fourth ranked Standard Life is growing faster than the market average. Several mid-size players are ratcheting up strong growth figures, including Zurich (+12%), Aviva (+19%) and particularly Aegon (+38%).
Life companies have the advantage of having off-platform assets to transfer on platform. That has certainly helped growth rates, but we are seeing a slowing in movement of these assets. After all, once they are on, they’re on.
Rise of vertical integration
We are also seeing a rise among players pursuing vertical integration. I mentioned Standard Life already. Standard Life is seeing strong uptake of its MyFolio product. MyFolio is selected most often by financial advisers when they are asked which multi-manager funds they use. We see preference for Standard Life’s multi-manager fund among users of the Standard Life platform and a similar preference among Aviva users (though for the Aviva multi-manager fund).
Smaller platforms that integrate the investment solution into the platform are also seeing terrific results. Parmenion posted 24% growth in Q1 (albeit from a relatively small base) and gets high scores from advisers across a range of criteria including BDM support, ease of use, usefulness of online tools. 7IM also posted strong results with AUA up 10% and also with high user reviews across the board.
While we believe there is room for many models, platforms are increasingly under pressure to cut fees while at the same time needing to reinvest to maintain relevance in a rapidly changing market. It is becoming hard to see a path forward for independent platforms that haven’t yet achieved scale.
Platform consolidation
The final theme to delve into is consolidation. We are often asked if we anticipate consolidation in the platform market. There are numerous platforms in the UK and whether they all remain independent is a matter for debate. And, we have already seen consolidation — at the back end.
FundsNetwork and Ascentric are moving to Bravura to join Aviva and Nucleus. Cofunds is also rumoured to be considering a move to Bravura (though whether L&G will fork over the cash is up for debate!). Alliance Trust Savings is moving to GBST and Old Mutual is moving to IFDS. This is a lot of money in motion (and this opens the industry up to some trying times in the coming months as there are always bumps in the road for big technology shifts).
Some believe two businesses running on the same back end makes consolidation easier. So technological integration could be a precursor to platform consolidation.
Whether or not there is consolidation of platforms, we are optimistic for future growth of the market. There are off-platform assets still to be moved and there are drawdown assets coming on platform that used to go into annuities. (Though ABI figures suggest smaller pots are being cashed in!). There are also DFM assets that still largely sit off-platform.
We predict double-digit growth for 2015 – in the neighbourhood of 20%. It depends on the markets but things are looking good for adviser platforms.