Are platforms embracing the new multi-asset world?

Investment trusts recorded a 66 per cent rise in platform purchases by advisers and wealth managers in the first nine months of 2013 compared with the previous year, including a doubling in the third quarter to a record £83m.

Meanwhile, as the end of the 2013-14 tax year approaches, VCTs are raking in £25m a week and heading towards a five-year high of almost £400m for the year as a whole, almost 50 per cent up on last year.

Of the platforms surveyed by The Platforum, 13 so far give access to VCTs, while nine do not. The consultancy says 19 platforms now offer access to investment trusts, with the very notable exceptions being the ‘big three’ – Cofunds, FundsNetwork and Skandia.

This latter is potentially significant: data from the Investment Management Association showed that net retail sales of Oeics and unit trusts through the five major platforms, Cofunds, Fidelity, Hargreaves Lansdown, Skandia and Transact, reached almost £8bn between January and September 2013.

This gives some indication of how small a proportion of funds invested trusts continue to represent. But the question is, is this reflective of a lack of demand that explains the lack of action from the big boys, or is their impassive stance to stance in part to blame for the under-investment?

Annabel Brodie-Smith at the AIC argues that the big three are softening in their attitude - and that in any case the post-RDR demands for advisers to broaden their platform horizons means this doesn’t represent a major barrier.

“We have been talking to them for a long time and had some encouraging conversations, but so far nothing concrete in terms of putting them on. The advisers we speak to use two or three platforms and as a result they can get access to investment trusts.”

Opening up

In the final quarter of last year, 90 per cent of platform sales were Oeics or unit trusts. Just 0.9 per cent was accounted for by exchange-traded funds, 0.5 per cent investment trusts and less than 0.1 per cent VCTs, according to Matrix Solutions data.

But in a survey by The Platforum of 165 advisers, when asked what investment instruments they expected to be included in client portfolios in 2014, investment trusts ranked above even equities on 32 per cent compared to 29 per cent. VCTs also scored well with 20 per cent.

David Ferguson, founder of Nucleus, sees platforms opening up to other asset types and argues the current status quo being maintained by the larger players favours wraps.

“Investment trusts have been on Nucleus since inception, but not on fund supermarkets. We have equities, securities, gilts, corporate bonds and even cash and fixed-term deposits, you can see a whole bunch of stuff.

“I guess what is happening is the market is moving towards a situation where almost anything you might want to have in your portfolio can be accessed through a platform.”

Hugo Thorman, chief executive of Ascentric, says the Royal London wrap platform has been a member of the London Stock Exchange since inception in 2007 and has £700m of ETFs, around £150m in investment trusts and £100m in individual shares.

“More and more advised clients want access to investment trusts because they have done so well, and of course ETFs.” Clients wanted platforms to offer portfolio modelling that could mix ETFs, passive strategies, and alternatives, he adds.

Outside of the investment space, Nucleus and Zurich have launched investment-linked protection products on their respective platforms. Nucleus’ term assurance policy pays out on death based on the difference between portfolio value and a client’s target. It also has an annuity portal which allows the adviser to see the best available prices in the market.

Again, however, the fund supermarkets and some of their larger cousins are lagging an apparent trend among their peers.

Cofunds, for example, said it is looking at launching investment-linked protection or a wider range of protection products onto its platform, though it has no firm plans as yet.

Ross Easton, head of platform market propositions at Standard Life, says there is “not a huge demand” for anything beyond mutual funds and Oeics, but there were signs of change with more advisers outsourcing their investment management.

“Specialist managers that run assets on our platform are asking for access to Sicavs and other offshore funds and ETFs, and we do see that demand profile growing. The more sophisticated advisers are starting to use more sophisticated tools and want a broader range of assets within their portfolios.”

Frank Spiteri, head of retail distribution at ETF Securities, commented: “More and more advisers are opening up a secondary platform, they might use Cofunds along with Nucleus or Ascentric. The big challenge for us is education, to get people out there using them more and more.”

Supermarket evolution

Ned Cazalet of Cazalet Consulting comments that the success of fund supermarkets had been fuelled by the now-vanishing rebates which had enabled them to pay trail commission to advisers.

The big players had more recently been focused on issues such as clean share classes and re-registration, but were now “becoming more like wraps”, Cazalet says.

“They have been up to their eyeballs in stuff to be compliant over the last few years. What you should expect to see now is a widening of investment opportunity. If you are an adviser and you are keen on VCTs and ITs there are platforms out there that will do that for you, but it will expand both in terms of asset class and fund format, and also tax wrapper.”

Cazalet sees platforms evolving over the next five years from being “a slightly smart bit of online banking” to enabling advisers and their clients to formulate strategies and engage in holistic planning.

“We will see them over the next 18 months to two years turning their attention to making these things richer experiences, particularly in the advisory space.”

Platforms in the at-retirement space were currently constrained, Cazalet adds, with limited access to options such as target-date annuities, structured products and long-term care plans.

“All sorts of things will end up being picked up by those platforms, otherwise they will run out of road at the point where the customers are looking to get the most value out of the advice process.”

Advisers see evolution on the way. Kenny Mackenzie at Lanarkshire-based SAM Wealth Management says: “I think platforms are continuing to evolve in functionality and will be increasingly regarded as a commoditised service, therefore cost is reducing which is important to us.”

He adds investment trusts were just coming onto the radar, and might be suitable for certain clients, while access to ETFs was already important because of their role in diversified portfolios but “we would typically be buying them through a fund”.