Platform watch: Before the future catches you
I couldn't help but recall the iconic Bob Dylan lyric 'the loser now will be later to win' when someone shared Investment Adviser's piece on IFA platform use with me recently. The work was wide ranging but broadly concluded that IFAs prefer to use bigger, more established platforms.
While I guess this is true at a headline level the output masks the reality of what is occurring in each of the IFA and the platform markets.
In terms of the adviser market, it is inevitable that advisers remain heavy users of the old-style fund supermarkets. They have been an integral part of the landscape for up to 30 years and have thousands of advisers who have been regular users for a decent chunk of that time. And why not? After all, although the fund supermarkets effectively perpetuated the life office model in being funded by the asset management community, they moved the world on significantly in terms of choice and functionality. Sure, choice was not unlimited but for advisers historically limited to building portfolios from a choice of maybe 50 or so funds, a shift to several hundred represented progress of note.
All fine. Until the product became the advice. A model initiated probably up to 25 years ago by a very small band of enlightened pioneers and which started to gather pace when Transact launched in 2000 started to become big news in the past few years. Now most enlightened IFAs seem to recognise that if they are going to be paid by the client then they are responsible for the product (ie the advice) and for assembling the relevant components. The RDR is obviously accelerating the shift further and what we call the Great Change will probably reach a conclusion in the next 3-5 years. The problem for fund supermarkets is that they have no role post the Great Change as they do not allow the adviser to truly own the outcome.
Which brings us to the platform market. The bias-infused supermarket model is increasingly being exposed for what it is. Progress over the life company model but not the end game. Rather, wrap platforms which allow advisers and their clients to develop truly bespoke solutions supported by much more flexible remuneration models (consistent with the demand of the RDR) are on the move. In Q1 this year, net inflows into wraps exceeded those into fund supermarkets for the first time ever. In Q2 it happened for the second time ever. Only more pronounced. And now the fund supermarkets are increasingly making plans to morph into wraps. I'm intrigued to see how easy they find the transition. Not only is transparency more than a pricing model but a state of mind but the operational function of a wrap is materially more complex than that of a fund supermarket.
In terms of future scale, the bottom line is that the biggest post-RDR platform is Transact, followed by Nucleus and Ascentric if you exclude the somewhat hybrid Standard Life offering. Axa Elevate is around the same scale as Nucleus and Ascentric.