Regulatory drive and market and commercial pressures are turning retail financial services upside down.
Sure, the RDR was huge, but financial advisers building fee-based, client-driven businesses had already laid the tracks. Whether it was the ‘crazy ones’ who got the ball rolling in the 1990s or the later adopters in the 2000s, the key change has been the shift of power from legacy product providers toward clients and their aligned advisers.
The client-valued ‘product’ is now personalised, bespoke advice: a product that can be delivered by assembling components such as platforms, mutual funds, specialist tax wrappers and such like. This is the fundamental change of the past 15 years, and one the RDR is catalysing. Many of these component providers are partly owned by advisers – and even by end clients.
Nucleus is an unusual business as it is majority-owned by its users. As such, discussions drift towards the wider issues of who should own a platform, or who the best investors for such a business are. It’s an important question that deserves more airtime.
Investors in today’s adviser platform market include UK and overseas life companies, asset management groups, private equity and actual users – financial advisers.
Which is best? It is impossible to give a single answer, but advisers, as users, might wish to ensure the investors behind their chosen platforms are properly aligned with them regarding deeper structural changes impacting the sector.
For example, if a platform’s investors or owners have more to lose than to gain as advisers and clients take greater control of the market, that is likely to dilute that platform’s alignment with users.
It’s also sensible to understand how each platform’s governance structure operates and how it might impact users and clients. What say do users have in how this crucial infrastructure operates?
The FCA expects to see greater maturity in the due-diligence process, and this will require advisers to ask more searching questions. This can only occur if the corporate purpose and governance framework is transparent, and platforms are able and willing to meet their side of this challenge. Poorly aligned or distant investors are unlikely to generate a positive outcome.
Some platforms are negotiating with fund managers on the basis that they can influence advisers to direct the flow of client money. Advisers wishing to deliver a tail-wagging-dog client proposition might find this attractive, but this doesn’t feel like a safe model in today’s environment.
The reason we set Nucleus up with majority adviser ownership was to ensure users are fully involved in a vital part of their infrastructure – not to line their pockets.
Should Nucleus ever be sold or floated, it is natural that the various investors, including adviser users, might make a return. But the most important aspect of adviser ownership is that advisers enjoy board representation and access to senior management. Similarly, we set up the business with an overseas institutional investor as we had an eye on the emerging platform market.