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Wraps & Platforms: How far we’ve come and where we’re going

Every life company was looking at how to launch one or to get their products onto one. There was a view that platforms were the way to drive your service offering to clients. Using a platform allowed consolidation of assets, the ability to control a client’s assets all in one place. IFA consolidators liked to see assets on a platform and started paying more for firms with assets clearly bundled together in one place. It was seen as a panacea to all the ills of upfront commission, low embedded value and high risks of diverse investment options - get the assets onto a platform, charge 1 per cent and you will have recurring value.

The platforms themselves have evolved from simple fund supermarkets, to allow for multiple tax wrappers and access to Sipps for example. Why would an adviser need to use anything off platform? The platforms also evolved to cater for the trend in outsourcing investment selection. Instead of promoting the wide range of fund links, platforms began to trumpet access to model portfolios - their own and those of third parties such as DFMs. Surely the inexorable rise of the platform as the answer to all the adviser’s problems would continue?

But a simple Pest analysis of the market for platforms would have revealed a few fundamental weaknesses to this argument:

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Political

The RDR has changed the game for platforms, and not just in the debate over rebates. The FSA has declared that it will be difficult to prove independence using one platform. So the notion of a client proposition being driven by the use of a platform has finally been put to rest. You need more than just a platform to justify your ongoing fees.

If an adviser uses a model portfolio from a DFM, the DFM may well be making investment decisions that are enacted on the platform for the client. However, often there is no direct commercial relationship between the client and the DFM, while the adviser does not hold discretionary permissions. This should be an area of significant concern for advisers.

The EU has ruled that “all aspects” of a DFM service are subject to VAT, but advice that leads to a DFM may not necessarily be, as long as the intention was not always to use a DFM (that is, the client could have ended up in another type of investment). However, where does the platform sit in all this? Will the platform be subject to VAT, as part of the DFM solution and how many platforms can facilitate such a transaction?

If a model portfolio is being used that is not driven by a DFM, but is implemented by the adviser, there are going to be commercial considerations post-RDR about how effective a strategy this can be. Every time a fund is switched, this will be advice, requiring customer consent. And advisers had best be able to justify all the ongoing research and due diligence that drives the fund selection inside those portfolios. Are the time, effort and risks involved in this approach really worth it to an advisory business, and is it really expertise in this area that client will buy?

Economic

The turbulent markets since 2008 have dampened investment levels and led clients to look at alternative investment and pension vehicles, which often cannot be catered for within a platform.

Social

The rise in IT literacy and the growth in DIY functionality has meant that planning tools, portfolio analysis and the forensic examination of assets, all in one place, is available to the man on the street with a laptop, tablet or smartphone, so an adviser will need more than just these tools to appeal to clients.