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:
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.
Technological
As providers have innovated, flaws in the platform model have been highlighted. For example, the growth in third way retirement products which, because of the specialist nature of the investment solutions used and the need for life companies to retain the assets, are not available on platforms. This means that the idea of running a service proposition from a platform is defunct and the platform has become, quite rightly, just another product that the adviser may use.
So what next for platforms?
Well, you have a regulator that does not want advisers using a platform as the answer to their service level, increasing risk and complexity in using model portfolios, clients who are not impressed purely by the technology and technology that cannot cater for all the solutions that you may need in a market that does not inspire equity investing. How then can the platforms evolve?
Some have looked to augment the core product that they offer (essentially easy, low cost access to investment solutions and tax wrappers under one account) with planning tools to enable advisers to build up a greater service offering to clients. However, it is difficult to see platforms succeeding in an arms race in this marketplace when there are specialist providers dedicated to developing independent, best of breed solutions. It seems the platform market has come full circle. At first there was confusion about whether a platform was just another product. Then they set themselves apart as a way of driving a service offering for clients. Now, the trend seems to be back towards the commoditisation of platforms - just another product. In a world where many platforms have access to hundreds of funds and a multitude of tax wrappers, and where planning tools are available from independent sources, it is difficult to see how providers can differentiate themselves.
Advisers will need to build their own clearly defined service model for clients, regardless of the platform solutions they may use. The successful will be able to demonstrate a robust, repeatable and independent investment process - using independent research and planning tools, leading to clear investment decisions with customer attitude to risk and tolerance to loss at the heart of every decision. There will be a clear breakdown of the cost of the services, both at point of advice and ongoing. And it will be the advice journey the client buys – with all the expertise, information and comfort that a good adviser brings. As for which platform all this is executed through, most clients will not care and advisers will be left considering two good old fashioned characteristics when selecting which platforms to use - cost and customer service.
Dan Russell is head of sales of Verbatim
