PlatformsMar 14 2012

Funds of our fathers

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Fidelity is widely acknowledged as being the UK’s platform pioneer, having launched FundsNetwork back in 2000.

However, prior to Fidelity, Skandia Life had introduced open architecture, offering investors a range of mutual funds within a number of its product wrappers - life and pension policies, then Pep and then Isas, under its multi-funds concept. Wrap players such as Transact and James Hay joined the market shortly afterwards, moving the market on towards full open architecture by encompassing a wider choice of investments and tax wrapper solutions.

Insurers were seeing their traditional life and pension business falling away as investors became increasingly disillusioned as a result of the mis-selling of personal pensions scandal, followed by problems with bonus rates on endowments and market value adjustments on with profit bonds. IFAs were increasingly unhappy with the performance of insurers’ in-house funds. Open architecture has increasingly been adopted over the last 10 years as a defensive measure, which has benefited platforms and fuelled the transfer of portfolios to platforms.

Since 2000, the market has swollen to over 25 platform players and £176bn in the advised space alone. The direct channel, harder to quantify in terms of the number of players and traditionally dominated by Hargreaves Lansdown, accounts for over £73bn in assets under administration as at September 2011. And despite the corporate platform market being in its relative infancy, current players operating in this market have a collective 62 corporate customers which in turn represent 240,000 employees and an estimated £100m assets under administration, excluding existing pension assets. A busy market across multiple channels.

With regards to the advised channel, there has been talk as the market has expanded about how many providers can be accommodated and whether the UK can expect to see consolidation of existing players through M&A activity or groups exiting the market completely. How many players can the market reasonably sustain, particularly as over 60 per cent of the UK advised platform assets are held with the three fund supermarkets? There have of course already been several high profile casualties, with groups such as Amex, UBS, Norwich Union’s Lifetime (now re-built and re-launched as the Aviva platform) and most recently Macquarie’s UK platform exiting the market.

While I am hesitant to draw too much comparison between the UK and other platform markets, M&A activity has been prevalent in more mature markets such as Australia. The Australian banks have developed and acquired wraps over time and are now the dominant players, despite being late entrants to the party.