Small players will survive – bigger is not always better

This article is part of
Mid-Year Review - July 2014

Since the birth of UK platforms in the late 1990s we have seen a steady growth in the number of platforms available in the UK market. There are now more than 30 to choose from, if you include adviser-only and direct to consumer.

New business inflows into platforms continue to grow and we are also seeing an increase in the number of clients and advisers using platforms.

In March, Fundscape quoted 2013 as having been an “extraordinary year” for platforms, with platform assets increasing by 50 per cent – rising from £196bn at the end of 2012 to £294bn in 2013.

While a proportion of this could be due to an increase in the markets, it seems to point to the fact that we are witnessing a buoyant market for platforms, and there is little sign so far of this abating. There is some debate, however, around the likelihood of platform consolidation.

Are all these assets going to begin flowing into just a handful of platforms? Some are suggesting there is room for such amalgamation. This argument for a more concentrated platform market is not a recent phenomenon.

A report last year by Deloitte predicted platform market saturation, and this view is somewhat similar to those being made 10 years ago, when the larger fund supermarkets were predicting that only a few could survive.

Yes, we have seen a few platforms fall by the wayside – but the market and appetite for platforms is continuing to grow, and we will see platforms that are passionate about meeting their advisers’ and clients’ needs not only survive but prosper in the post-RDR landscape.

The trend to outsource portfolio construction is set to continue, centralised investment processes are attracting more regulatory attention, and advisers in the post-RDR world are beginning to require a broad spread of investment vehicles such as investment trusts and exchange traded funds (ETFs). They are more likely to be able to access these using agile platforms with the IT capability to provide the more unusual, but highly relevant investments.

Against a background of downward price pressure, platforms can enable the most efficient use of advisers’ resources, helping them service less profitable clients in a cost-effective manner.

Platforms obviously need to be profitable to survive, but a focus simply on assets under management might be somewhat misguided. History has shown us that simply being a big company might not protect you from failure, the exit of Macquarie from the UK wrap market in 2011 being a prime example.

Smaller platforms are grabbing the market share, they can move faster, offer a wider range of investment vehicles and can adapt to the market more efficiently.

I would struggle to agree with the hypothesis that only a few big players will survive in the platform space. Bigger is not necessarily better.

Pippa Russell is head of corporate communications at Novia Financial