This month I’d planned to write about integrations – their challenges, their opportunities and how to work with them if you’re an adviser. But then all sorts of stuff started happening in Platform Land (still the worst theme park ever) and it’s too good to leave aside. So we’ll do integrations next month. Try to contain your excitement.
For as long as I can remember (which isn’t as long as it should be), we’ve talked about platform over-supply and whether the market can really support in the region of 50 or so offerings across direct and intermediated channels. The inhibitor of platform consolidation has always been a two-pronged…what? I don’t know many things with two prongs. Carving forks? Tuning forks?
Two-pronged predicament
The inhibitor of platform consolidation has always been a two-pronged carving, or tuning, fork of commerciality and technology. The sclerotic nature of much platform tech inhibits platform consolidation because it makes it brutally uneconomic to bring platforms together. And the wafer-thin nature of platform commercial life makes it uneconomic to rebuild platform tech in a way that would break the deadlock. So we plunge on, in ever-decreasing circles, until we disappear right up our own metaphor.
This has been an intractable problem for ages. When you ally it to the very full price that those platforms who are open to being bought over have been looking for, we seemed to be in for a pretty stagnant time for the foreseeable. But all that changed recently as Standard Life announced its acquisition of AXA Portfolio Services, which operates the Elevate and AXA Self Investor (ASI) platforms.
SL and AXA
Platform news is like metaphors about two-pronged things; you wait for ages, ask for help from Twitter and then a bunch all turn up at once. By the time you read this we expect news on Cofunds’ future to be a lot clearer; and also in the mix is Aviva’s replatforming of its advised business away from Bravura to FNZ (this last was announced before the Standard deal, but that only goes to show).
Let’s look at the AXA and SL thing in a bit more detail. The news got the haterz out in force, and that’s understandable. Interestingly, I had advisers contact me saying they assumed that all the assets would go on to SL Wrap as it’s much better than Elevate, and they were worried about ‘capture’ of the platform by that activity. I also had advisers contact me saying they assumed that Wrap assets would go on to Elevate because it’s much better than SL Wrap, and they were worried about that. Platform efficacy really is in the eye of the beholder.
The right move…
My view is one which worries me a bit. Normally, I love putting the boot into life companies, but this time I find myself nodding and thinking ‘yup, probably the right move’. There are several reasons for this.
First, the shared FNZ underpinnings of Elevate and SL Wrap do make life easier. It’s still not easy to move assets from one to another; if you do go down that road there are changes to SIPP schemes, custodians, and the technology itself. However, Elevate and SL Wrap are not identical systems; both propositions have been around for a while and have tried to differentiate themselves by taking their platforms in different directions.
As an aside, for my money Elevate has better back-office integrations and is a bit easier to use. SL Wrap is far superior in terms of setting up and maintaining model portfolios, and linked to this has much better DFM functionality – thanks in part to FNZ’s xHub portal. Both systems have drawbacks and detractors, but equally both manage to look after billions of client assets without the sky falling on anyone’s head.
Branching of the line
If SL does try to do a big migration, it has two routes to go down. The first is to try to do a replatforming exercise: treat the whole Elevate book as one, and move it over en masse, or at least in a few big chunks. This is the quickest route, and certainly makes sense from some perspectives. But the industry is littered with the still-twitching bodies of replatformings, all of which (and I do mean all) have been harder than anyone contemplated.
The second route is to move assets over time. There’s a bit of a similarity here between how firms treated the sunset clause: you can move assets all at once, or leave it up to advisers over a period of time before doing a sweep-up exercise and forcing the stragglers to jump the fence.
A third way?
But it’s possible there’s something else going on here. If we accept that Elevate and ASI are simpler in nature than the more complex but very full-featured SL Wrap, we could see Standard offering a two-pronged platform to the market. These prongs would be different from the earlier prongs, by the way.
In this scenario we’d see SL starting to return to the days when we used to talk about the UK following the Australian platform model, where you have full-fat wraps and ‘wrap-light’ propositions; one enables full-on open architecture; the other is possibly better suited to what we’re starting to think of as restricted investment propositions.
Service as normal
Irrespective of brand, or any charging decisions SL makes for the Elevate book, it’s also true that many, if not most, clients won’t care about this change. As I’ve said too many times in this column, the benefits of platforms mainly accrue to advisers rather than clients, and a happy adviser normally makes for a happy client.
Those who do take an interest will find that instead of a very large insurer looking after them, they have… a very large insurer looking after them. Service will continue. No one’s assets will disappear. And eventually the waters will close over this deal, and we will all get on with cooking eggs and stuff.
Whether the AXA/SL deal will be good for SL shareholders remains to be seen. But to me the strategic fit is very strong. It’s also the only way that SL is going to be able to grow fast enough to satisfy those who want to see the platform head, eventually, for £100bn or more. SL has suggested that the market will eventually be composed of buyers and sellers, rather than folk sitting pretty, and that makes some sense.
Smooth ride
Back in 2010, when Macquarie exited the market, the industry pulled together to make sure that the necessary admin happened and that clients got as smooth a ride as possible.
This strategic exit by AXA from the UK long-term savings and investment sector is different from Macquarie’s, but from a client’s point of view it must feel very similar. In this case, rather than assets dispersing across many platforms, they’re all going to the one place, but the need for treating advisers and clients with respect is the same. And underneath all the tech chat, that’s the really big issue.
It’s only the engine…
This entire sector – advisers, platforms, fund managers, consultancies like us and magazines like the one you’re reading – exists at least in part by filching a little slice of clients’ assets. We’d do well to remember that the important thing isn’t whether the tech stack is better over here or over there, or whether you like your platform in blue and red or yellow and blue.
Advisers work on behalf of their clients, and together they are in control – and they will be the ones who make the decisions about whether platform consolidation is a goer or not.
Mark Polson is principal of platform and specialist consultancy, the lang cat
