You might not have noticed but the platform market is undergoing a period of intense transition. Behind the scenes, some platforms are making major shifts in strategic direction.
At one end of the spectrum, platforms that operate at the lower end of the advice market will have to look at the investment needed to compete in the sophisticated ongoing advice sector and wonder whether they might ever see a return.
They can opt out completely and watch as thousands of customers are disintermediated by the sunset clause. With next to no meaningful investment a platform can go from credible player in the financial adviser market to a sizeable direct operator. And with just a little investment in customer brand building, these platforms have every chance of playing Hargreaves Lansdown at their own game.
At the other end of the spectrum there is the rise of true wealth management platforms. These will serve the emerging wealth market, as sophisticated advice and private client discretionary models converge. More advisers are securing discretionary permissions and building investment teams, while at the same time discretionary businesses are adding financial-planning capabilities or buying advisory firms.
We shouldn’t be surprised by this trend. The RDR has pushed previously quite different business models together. Advisers now operate on a fee basis like private client managers, while both advisory and private client investment processes are governed by the same FCA Central Investment Proposition (CIP) guidance.
Changing demographics and the Budget reforms also demand a more holistic approach to wealth management. Investing to produce an income in later life is considerably more challenging than a simple accumulation strategy. And tax optimisation across a multi-tax-wrapped portfolio is an ongoing process – creating the best client outcome requires expertise in both disciplines.
Delivering this requires a wealth management platform that can cope with both investment and tax-optimisation strategies.
The introduction of the CIP guidance and the move to unbundled fund pricing on platforms has already affected the relationship between investment managers and platform providers. In a much more transparent market, investment managers have had to think long and hard about which platforms to offer discounts to.
This has proven hard on some of the smaller or less-efficient platforms. The impact of the pricing advantage secured by certain platforms is now beginning to be seen through faster growth and higher retention rates.
The pressure is also rising for smaller funds and fund managers without the brand recognition or proven investment track record. There are signs that the introduction of more structured fund selection processes is resulting in a greater concentration in fund selection and it’s the larger well-established managers that are winning.
In considering the scale and significance of these market changes, it should not be forgotten that the majority of fund assets still sit on platforms dominated by traditional bundled fund share classes. But not for much longer. These platforms have to move to a fully unbundled model by 2016, unsettling a large volume of assets.