At the Lang Cat we see a platform market that is struggling.
When the largest player in terms of assets under administration – Cofunds – cannot make it work, and has reportedly tried and failed to secure a sale, questions have to be raised about the market as a whole.
We firmly believe platforms have a future, but in their current guise they are dead.
Indeed, the real action is happening within the platform technology space.
There are six technology suppliers – Bravura, FNZ, GBST, IFDS, JHC Figaro and SEI – which supply the core systems to the vast majority of platforms, with the exception of a few others that use in-house kits.
Maintaining and developing platform technology is an exercise in continuous improvement, otherwise your proposition will suffer and your support levels will drop. Little wonder that an increasing number of providers are choosing to outsource the role of technology and partner with one of the aforementioned suppliers.
This does not come without significant challenges, though. Moving from one technology supplier to another is pretty much the hardest thing a platform can do, akin to changing the engine in your car while driving along the motorway.
In addition to technological challenges, or more likely a consequence of them, the way platforms make money has changed dramatically.
If your definition of a platform is a business where its sole source of revenue is an explicit advised customer charge, then the market does not comprise approximately 30 platforms – the common consensus – but just two: Nucleus and Transact.
Everyone else has additional revenue streams within their wider organisations and/or is trying to diversify and secure more through the integration of asset management, discretionary fund management (DFM), direct to consumer, offshore platforms, protection or advice.
So, what of the future?
The migration and amalgamation costs for any merger or acquisition are so significant only the brave and well funded will go down this path. The challenge of amalgamating two investment platforms is huge – two to three years effort and costs in the tens of millions would not be untypical.
In addition, the disruption a merger will have on the day-to-day operation of a company will mean the overall costs of an amalgamation are likely to be a large multiple of the acquisition price, all in all making any such move both financially and logistically unpalatable.
We strongly suspect some of the recent rumoured mergers have failed to come to fruition for these reasons.
Platforms therefore need to take a closer look at the market, listen to what advisers actually want, and reinvent themselves. Gone are the days of needing loads of funds.
Advisers want either genuine open architecture, or access to outsourced solutions such as model portfolios and DFMs. The bells and whistles of funky tools are no longer relevant. Integration to external tools and systems such as FE Analytics, FinaMetrica and Intelliflo are increasingly important and should work much more effectively than they currently do.
The challenging times that some platforms are facing represent a good opportunity to focus on doing the basics well. A platform that offers a range of outsourced investment solutions, delivers reliable custody, and is well integrated with external tools, will find its future bright. We fear for the rest.
Mike Barrett is consulting director at independent consultancy the Lang Cat
PLATFORM ACTIVITY: KEY EVENTS THIS YEAR
Aberdeen acquires Parmenion
In September the fund management house agreed a deal to acquire platform and discretionary manager Parmenion for an undisclosed sum. At the time, Aberdeen said the deal formed part of a strategy to “capitalise on financial technology advancements”, as well as the pension freedoms reforms. Under the deal Parmenion will retain its identity and stay in Bristol but will receive additional investment from Aberdeen to expand its service.
Caledonia buys majority stake in 7IM
In June the Caledonia investment trust acquired a 94 per cent stake in Seven Investment Management (7IM). Under the deal, it invested £77m in cash to secure a majority stake in the company from Zurich Holding and Aegon UK. 7IM now accounts for roughly 4.7 per cent of Caledonia’s portfolio.
