Both big fund supermarkets and plucky platform upstarts will need to diversify their propositions in the future if they are to remain profitable, according to Standard Life’s wrap boss, as he points out that current price cuts are unsustainable.
Speaking to FTAdviser, the firm’s head of adviser and wealth manager propositions David Tiller said that adviser platforms at either end of the market have engaged in unsustainable price cutting over recent years.
“The question as to how much a platform should charge really depends upon what it is doing and for whom.
“Looking at flows from advisers, it would appear clear that some platforms have cut too deep to be able to develop the complex functionality and support required,” he stated, adding that cheap pricing with poor support and limited capability will not continue to attract adviser business.
Earlier this week Standard Life was identified as one of the least competitive platforms in terms of price by consultancy the Lang Cat, while the likes of Cofunds and Fundsnetwork were both rated as highly competitive.
Mr Tiller responded that this just exemplifies that not all platforms are the same and defended his firm’s own profit record. “We’re not making loads, but we’re not loss making either and it’s a long-term game.”
Terry Huddart, research analyst at the Lang Cat, told FTAdviser that their findings demonstrated that price is not the key determinant of future success, adding that new investments are not flowing to the cheapest platforms.
“Suitability and functionality are far more important. Perhaps it is time for platforms – advised and D2C – to focus their energy and investment on building new digital and mobile functionality to provide real differentiation.”
Mr Tiller said that platforms are not without growth options, pointing out that while advisers demand the highest levels of sophistication, other routes to market are perhaps easier to serve.
“Markets such as workplace may be less demanding in terms of functionality, although this means going head to head with some well established operators who have already driven down their cost base.
“Direct-to-customer is another option and potentially an attractive one for the older fund supermarket platforms who will also gain a book of orphan clients through sunset clause unbundling.
“Serving this market requires a simpler solution with less optionality or technical requirements, although getting the front end interface right will be key.”
As for smaller platforms, Mr Tiller suggested a completely different route.
“Instead of competing in the volume-based platform space, they may be attracted by the additional revenues available as a wealth management business. Adding advice and potentially discretionary investment capabilities could transform a small platform into a scale wealth manager.”
Malcolm Kerr, executive director for Ernst and Young’s financial services division, commented that for as long as there is an over-supply of adviser-focused platforms, there will be continued pressure on margins.
“Very significant investments are being made by a number of players in order to refresh or replace underlying technologies which creates further challenges to the bottom line.
“On the face of it, consolidation may create a smaller number of larger and more profitable players but merging two platforms is far easier said than done.”
peter.walker@ft.com
