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Platform and Sipp markets to see 80% drop in 2013

A raft of regulatory changes in 2013, including the recently enacted Retail Distribution Review and incoming capital adequacy rules for self-invested pension providers, will prompt a dramatic decline of more than 80 per cent in platform operators, James Hay Partnership has predicted.

Tim Sargisson, managing director at the self-invested pension and platform provider, estimated the current size of the platform market, including both pure investment platforms and those used exclusively for Sipps, to stretch to more than 100 providers. He said over the coming twelve months this would likely shrink to less than 20.

However, Mr Sargisson told FTAdviser that this enforced attrition will benefit customers in the long term rather than hurt competition, as it will mean customers are left dealing with firms with greater scale and thus less risk.

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He said: “2013 will see a new age of industrialisation in the Sipp [Self-invested personal pension] and investment platform market. In recent years both these markets have seen a large number of new and small scale providers launch products to advisers and clients alike.

“However, with the constant and relentless wave of regulatory change and escalating requirements for increasing levels of capital, staff and monitoring activity, many of these providers will be forced to exit or sell out to large more scalable competitors.”

The prediction is in line with that of Tenet’s Keith Richards, who said in November 2012 that the investment platform market would see a drop of up to 75 per cent post-RDR from 32 providers to as few as eight.

Mr Richards said the drop off would be prompted by an existing lack of profitability at many firms being exacerbated in the new environment, with remuneration changes for advisers prompting an increasing focus on fees.

According to Mr Sargisson, the few remaining platform providers will offer differing services and pricing options depending on the sophistication of its target market.

He said: “Service standards and professionalism will also increase among the remaining providers and customers will actually enjoy far more transparency in a way never seen before, with the ability to move from one provider to another with relative ease.”

As well, advisers and their customers will increasingly turn to web services to manage and monitor investment portfolios. This will put further pressure on companies to refine their IT infrastructure.

Mr Sargisson added: “So, the regulatory and IT changes we are seeing at the moment may create pain and fallout during 2013, but in later years they will no doubt help both the wider industry as well as the customers it serves.”