This time next year, the platform market is likely to look a lot different from how it does now, according to several industry stakeholders.
Andy Bell, chief executive of AJ Bell, said the big theme in 2016 will be profitability or, in many cases, a lack thereof, in the platform market.
“Too many platforms are chasing the mirage of profitability without adequately managing their cost base,” he stated. “With platforms now accounting for over half of retail sales, I think the commercial models are going to come under greater scrutiny from advisers, the regulator and platform shareholders.”
Mr Bell argued it is even possible that the Financial Conduct Authority may further increase the amount of regulatory capital required to be held by platforms.
“We have already seen evidence of the patience of deep-pocketed shareholders running thin and I think this is set to continue. There are plenty of platforms for sale at the moment but very few firms who have the appetite or ability to buy them.”
In October, consultancy The Lang Cat proclaimed the industry effectively dead, pointing to rumours that its largest player in terms of assets under administration, Cofunds, reportedly tried and failed to secure a buyer.
However, Mr Bell suggested that widespread consolidation is unlikely in 2016 or in fact beyond next year. “That is not to say we won’t see selective deals where it makes sense, but I think these are more likely to be companies buying into the platform market rather than platforms consolidating.
“Vertical integration is a horrible phrase, but I think it is a trend we will see more of, with platforms looking to extend the services they offer and fund groups looking to wrestle back distribution; which is where we may see some acquisition activity.”
Speaking to FTAdviser, Standard Life’s head of adviser propositions and strategy David Tiller said more will become clear once the April ‘sunset clause’ deadline hits, effectively turning off trail commission for advised platform clients.
“I think that when we see was businesses do with that orphan client book post the sunset clause, we’ll get a better idea of overall strategy,” he stated, musing as to whether platforms will actively market to them or let them drift away.
“It’s an interesting time, as the less salubrious methods of procuring business have been clamped down on by the FCA, things become much simpler and we have more toe-to-toe competition.”
Cofunds claimed that out of 800,000 end-investors, less than 0.1 per cent are orphaned, while a spokesperson for OM Wealth stated: “We anticipate a slight rise as the sunset clause deadline approaches; over 80 per cent of platform assets have already moved to an unbundled charging structure.
In terms of the big three fund supermarkets “haemorrhaging assets” this year, Mr Tiller commented that many of these clients have found themselves homes at smaller platforms, but with that income stream potentially being switched off next year, he questioned where further growth will come from.
So as to signal Standard Life’s commitment to the market, the firm recently put £30m of investment towards the wrap platform to streamline adviser and wealth manager business processes and proposition delivery.
peter.walker@ft.com
