Q&A: Standard Life’s David Tiller on the future of platforms

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What are the key developments within platforms?

The regulator has made it very clear that it expects the industry to be clean and transparent but there’s a lack of awareness among some advisers of the changes taking place and what they are likely to mean for their businesses.

In particular, since April 6th this year cash rebates have been banned and discrete platform charges are being levied for all new business, while in two years’ time the need for this discrete platform charge will be extended to cover legacy assets as well.

Many platforms are in a transition period and it’s unclear what advisers will be asked to do in order to move their clients to a clean model. There are question marks over how helpful various platforms will be, particularly if they’re still keeping rebate income from clients remaining in a bundled model.

Therefore, advisers need to consider how the different approaches will impacttheir clients and central investment processes, establish whether platform providers will expect them to convert clients, and work out a clear plan and policy to avoid disruption to their clients and businesses.

How should advisers choose a platform provider?

Choosing a platform is a major decision and advisers need to focus on three main areas: platform ownership, funding and strategy; platform performance; and platform capability.

Platform ownership considers whether the provider is in the adviser market for the long haul. Is there an ongoing development programme? After all, it’s a relationship they’re entering into so they need to know the other party is as committed.

Platform performance should get the most attention because it’s vital that a provider can carry out its core activities well. Do the admin and dealing functions work? What issues have they dealt with in the past? Have there been regulatory or client money concerns?

Platform capability is about how it can support the adviser’s segmented client proposition. Some firms will only deal with one segment, others more than one. Does this fit the adviser’s requirements? Is there enough flexibility of investment function and options?

How can they get a grip on the various charges?

At present this is very difficult. The short-term consequence of the regulatory environment is that we’ve had more different charging structures appearing in the industry than fewer, so the key is to focus on the total cost of ownership.

To calculate the true ‘on the road’ cost of the fund they need to look at the OCF/TER plus the platform fees - AMCs are now largely redundant. This is straightforward for a 100% clean model where no rebates are involved, otherwise you need to understand the size of any rebate and whether or not it will be taxed.

If you are delivering ongoing investment advice involving regular rebalancing and other transactions, you should also be cautious about platforms that have low headlines but take charges for a range of ‘events’. I’d recommend making some assumptions about the how often you expect these‘events’ to take place and factoring this in before comparing it to the more inclusive charging structures.

How else can advisers assess the value of a platform?

Another aspect is price sustainability. Platforms that have low headline prices for new business are only telling a small part of the story if the large majority of their clients are paying higher bundled charges.That’s why it’s important for advisers to consider whetherall customers are being treated consistently on the platform.

If they’re not extending the best possible terms to all customers there’s a question mark over whether they can actually afford it. If they can’t then there’s an inevitability that the price will go up in due course.

Advisers should also look at the price alongside the platform’s investment profile. If it’s not investing in itself then there’s a risk that the low price might be coming at the expense of development.

Similarly, they need to pay attention to platform net flows. If platform growth has slowed and the price is being cut to stimulate flows then they should be suspicious. Is there something else going on which they need to be concerned about?

I’d also caution people against becoming distracted by functionality that they won’t use. Functionality is only of value if you actually make use of it. It comes down to the adviser’s proposition and what they need for their clients.

Flashy front-end tools that aren’t actually integrated into the platform are lovely little marketing gimmicks but don’t really help with the core of driving a more efficient and effective business.

What is Standard Life doing to respond to the challenges?

We fully unbundled our platform ahead of the FCA deadline because we wanted to be ahead of the curve and not to impose that work on advisers. In addition, we are now in a position to offer more than 290 discounted, clean funds.

Throughout the RDR process it has been clear that advisers who are free to focus on adding value, rather than having to concern themselves with issues such as converting share classes and completing platform charges paperwork, are the ones likely to be the most successful.

Separately, we are also seeing an increasing demand to accept assets in specie so are working hard to see how we can help advisers with client segmentation, analysing their data, and giving them access to extra paraplanning support.

How do you see the demand for platforms developing?

There’s a move across the industry to do more business on platforms. A prime example is the ‘AtRetirement’ market where the recent Budget will drive more people to stay investedand seek ongoing advice.

They require a wrap platform on which advisers can optimise their tax positions as well as closely managing their investments. When you have to live with those investments, rather than just chasing growth, you want to know someone is looking after them.

How do you see the industry changing?

The industrywill be in a transition period over the next couple of years but will ultimately get to the point where all platforms are working in a clean and transparent manner. This will create a degree of commonality and make it much easier to compare like-for-like.

A consequence will be pressure on platformsthat can’t create efficiencies of scale and struggle to negotiate preferential fund terms. Some consolidation of weaker platforms will be inevitable as there’s clearly over supply in the market.

As well as corporate activity there will also be some platforms that ultimately give up. The issue here will be how well clients are protected. If a small platform effectively goes into administration the danger is its assets become frozen. If you’ve built your advisory business around that platform then you’ve got some major challenges to overcome in order to keep trading and looking after your clients.

We’ll also start to see platforms specialise in different areas of the market. From our point of view I’m determined that Standard Life should lead the market in supportingadvisers’ central investment propositions.

This involves helping the more sophisticated wealth managers and advisers, which I believe is going to be a massively growing space. There are some fantastic firms out there which are already beginning to enjoy real success in a post-RDR environment.

What technological developments are you expecting?

We’ll probably see different types of technologydeveloping. Most major platforms will be looking at mobile technology as well as having different navigation structures. The world has moved on so in terms of usability we will see an evolution over time.

The most fundamental piece of technology is probably the bit you don’t see. We know a lot of platforms are investing heavily in their infrastructure because they need to ensure their processes are robust and strong.

In some cases this is being driven by the fact that older platforms built their models on a fund supermarket basis and now, in a post-RDR world, they are looking to re-engineer towards a wrap model.

At Standard Life we invested an enormous amount in this area during 2011 and 2012 because in light of the projected growth of the market, the platforms that will survive will be the ones in a position to deal with a far higher volume of assets.

What issues are facing the industry?

Streamlining asset re-registration must be an absolute priority. It also taps in to what I was saying about managing orderly exits from platforms if they do go bust. If there’s a very slick automated re-registration process in place then that will help enormously.

We’re going in the right direction but we just need to grasp the nettle and set a standard for the end-to-end process from the client request to the client outcome. At the moment, platforms imposing exit penalties can drag out the process and reflect badly on the industry.

It’s a similar issue with legacy customers. Interestingly, the energy industry regulator is now saying companies should put clients on the best available tariffs. Hopefully our industry will do the same for the right reasons and without the need to legislate.

What is your final message to advisers?

We passionately believe in the advisory market. An ageing population – coupled with recent Budget announcements – has reaffirmed our belief that advice is absolutely essential and will have an even bigger role to play in the future.

There are always the doom merchants predicting the demise of the advice market but I think it’s healthier than ever. We areon the side of the adviser and want to help the development of successful, independent businesses.

Although some may question some of the ways in which the regulator has gone about its business, you can’t argue that it’s taking the industry to a far better place that favours the most professional advisory businesses