Platforms  

Boom and bust?

Platforms are big talk right now. More advisers are using them, the market is growing and the regulator is starting to take notice of this sector, which hosts billions of pounds of assets.

While seeing huge growth, many of the underlying business models of platforms themselves do not make for a pretty financial picture, with expansion being the only solution to unsteady looking books. This is likely to be exacerbated by the increasing focus on costs that the RDR and current low-return environment is bringing to all sectors of the financial world.

It is predicted that unbundled charging models, where all fees from all areas of the platform are made explicit, will increase this focus on costs when advisers and this is up for debate and whether it will enact change remains to be seen.

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Rising number of platforms

The platform market has boomed in recent years. Data from the Platforum, a resource on the market, shows that 21 platforms exist in the adviser market. This does not include network offerings, which represent an additional 10.

Table 1 shows the size of each platform that participated in the survey and the size of the total market, now totalling £16.8bn. This compares to £15.1bn from the last Money Management survey of the market, as at 1 September 2011.

The sector has seen huge growth in recent years, growth that many predict is not sustainable. Some believe that as the average adviser uses two or three platforms at most, there is no need for all these, particularly as many offer the same or very different services.

However, Holly Mackay, managing director of the Platforum. believes that the rising market is likely to be in the direct-to-consumer sector. With the RDR expected to lead to many orphaned clients, who do not have large enough investments to justify the fees advisers will be charging, it is said there is a large market to go direct. While the consensus is that most of this will go to the banks, there is also a healthy belief that platforms can sweep some up. There are already prominent names in this market, such as Hargreaves Lansdown, BestInvest, TD Waterhouse and more, but there is certainly room for growth.

A whole new world

Platforms do not escape the impending sea change that the RDR brings and many have had to make big changes ahead of the 2013 deadline to get their house in order. The main aspects of these are:

•Product selection – to ensure that all products on the platform are in line with the new rules.

•Unbundled pricing – offering an alternative to the bundled charging model, in which prices are explicit, upfront and separate.

•Clean share classes – getting clean share classes from fund houses to allow the new charging model.

•Disclosure – changing terms and conditions and allowing segmentation of clients etc.

There is more to the changes than this and some platforms are not yet fully ready. For example, Cofunds has not released its new charging model, although expects to in September, while Skandia is releasing details in the rather broad timeframe of “summer 2012”.