Are you one of the 68% of UK advisers who use a platform to manage clients’ pensions and investments? Then your business needs are actively shaping the development of the platform market, says David Tiller, Head of Adviser and Wealth Manager Propositions.
Change starts with the adviser community
While our old friends, regulation and legislation, have undoubtedly played their part in placing demand for development on platform suppliers – with MIFID II, Pension Freedoms, RDR and PS13/1 all in the shake-up going forward – I’d suggest that it’s actually the voice of the adviser community that’s most actively driving the long-predicted consolidation stage of the platform market.
Why is this the case? And what does this mean for platforms, advisers and their clients? Well, it’s not that advisers are specifically asking for consolidation, as such. It’s more an active response to the fact that criteria are tightening, and advisers’ requirements are increasing in complexity and sophistication – a situation which is heightened by the growth in consultancy firms providing due diligence services to the adviser market.
And, let’s agree - this is a good thing. As the professional end-users of platforms, with clients to satisfy, advisers should expect to be demanding and the resulting market force improves value propositions and prevents complacency. This means platform providers coming under persistent and positive pressure to invest in improvements – it’s a commercial and competitive imperative, and a virtuous circle.
Platforms – sophistication and flexibility are entry-level now
This investment and development doesn’t mean platforms just delivering governance basics and BAU fixes. Although it may be tempting to try to maximise business value by keeping costs down and doing little more than observing compliance around regulatory change, that is simply not going to cut the mustard in the competitive landscape I have outlined. Platforms that continue to want to work effectively with advisers must be able to support their client propositions. And platforms are not selling widgets. They are highly sophisticated, flexible applications, which need to support numerous combinations of proposition and business model.
Neither are we talking about simple relationships. For every adviser on a platform, numerous different propositions, client goals and business models need to be supported, effectively and efficiently. This means platforms need to be flexible: highly configurable and aligned with a range of different investment processes, client service propositions, back office systems, relationship support models, fee structure – the list goes on. Some providers may be tempted to limit the scope of their service to focus on a particular niche. Time will show whether this strategy can work or whether the limitations of such a service become its downfall – after all, platforms are about aggregation, integration and efficiency. The more often an adviser is forced ‘off-piste’, the less efficient their model becomes.
Is it okay that a platform does not cope with capped drawdown, the ability to levy a separate discretionary fee or include a fully integrated bond tax wrapper? Wide coverage and flexibility comes at a price – it’s complicated, time-consuming and therefore expensive to develop, test, and deploy.
A question of value
Wherever there’s cost and complexity inherent in a system, the temptation to undercut fees and cut corners will arise in order to gain competitive and cost advantage. And while some providers may go down this route, market behaviour suggests that this isn’t a sustainable approach in the long-term with price cuts typically not rewarded by additional flows.
Industry surveys often cite fees as the top driver for platform selection. However, looking at the platforms where advisers actually place their business tells a different story. Price is important but value is paramount. We are all in the business of helping clients with their long term savings and investments and advisers have to consider the efficiency of their service and how their platform can support their clients’ needs as the develop and evolve.
In the market today confidence, partnership and quality all carry significant weight - and my belief is that they’ll continue to do so. But in the end, it’s what advisers need and want from their platform that will continue set the standards – and that’s got to be a good thing.