Platform Choice Roots for a solid future
Andy Coleman examines what to look for when future- proofing your choice of platform
In the space of 15 years, the number of investment platforms in the UK has increased from zero to more than thirty. But given the pressures of competition, it’s likely we may have reached ‘peak- platform’. Dramatic consolidation has already taken place in the more mature (but admittedly smaller) Australian market, which now has around 10 players, while just five providers dominate the US market.
So, should advisers be asking themselves as part of their due diligence whether the platform they choose today will still be around tomorrow?
Here’s our view on the nine attributes that we believe will characterise the platform winners of the future - both in terms of their own competitiveness and the benefits they can deliver to advisers.
1. Scale
The capital costs of being in the platform market are huge. So much so that only a handful of platforms in the UK are currently estimated to make any profit at all. And recent figures suggest that other platforms will struggle to join them.
Following the Retail Distribution Review (RDR), it was inevitable that profit margins for platforms - as for the whole of the distribution chain - were going to be squeezed. Last year, Deloitte estimated that, post-RDR, the break-even point for platform assets will rise from £20 billion to £40 billion, as increased competition and reduced margins force down platform revenues from 30bps to 20bps.
Deloitte went as far as to predict this could lead to the UK sector consolidating from 30 providers to around 10, plus a few specialists.
2. Experience
Platforms need to achieve an interesting balancing act between innovation and having the experience to navigate changing market conditions that may see striking differences in fund flows and service requirements. Platforms that have already demonstrated they can weather global credit crises, liquidity-driven bull markets and massive regulatory change offer an added layer of comfort against future uncertainty.
It’s just as important to know that a platform has worked through its own growing pains. No one wants to be the guinea pig used to stress test what may happen to a platform’s infrastructure as its AUA suddenly triples in size.
3. Charging clarity…
The RDR was intended to make charging more transparent. But transparency isn’t the same thing as clarity. So it’s important to look for a platform that has a clear commitment to making the total cost of engagement simple and explicit (as well as competitive) for both advisers and investors. After all, if you’re finding it hard to work out
what a platform will cost - what else may you struggle to understand about it?
4.…and charging reality
Just as transparency isn’t the same as clarity, so cheapness isn’t the same as value. Before selecting any platform, it’s worth asking if its charging structuring will realistically allow it to keep investing in its technology, services and people. Like anything in life, if a service is very cheap, you may pay for it in other ways!
5. Great people
Platforms may primarily be about brilliant technology but the very best platforms are
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Wraps and Platforms
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