An odd column this month. Mostly I want to go back to basics on platforms, but I also want to touch on something technological, which is starting to get some airtime and will have an effect on adviser businesses.
In terms of the former, it’s timely to think again about the sector now that we’re through the first wave of mergers and acquisitions. We’re seeing some pricing shake-ups – Elevate, Alliance Trust Savings and Ascentric most recently – and, all in all, the landscape is shifting at a rate of tectonics we haven’t seen for some time. Mixed in with this is something advisers aren’t generally engaging with yet, but will have to soon – Mifid II. I’m only going to pick up on one or two key things this time, but rest assured we’ll return to the subject throughout the year. Sound like fun? I thought so. Let’s do this.
Through the looking glass
If it was a human, the platform sector would be studying for its A levels. It wouldn’t be able to get a festival ticket for love nor money, and it would be seriously confused at the concept of a telephone that’s fixed to a wall and doesn’t take pictures.
Yes, it’s now 17 years almost to the day since what we now recognise as the advised platform sector was born. In that time, there have been some shady practices: behind-the-scenes rebate pocketing, interest rate skimming, which mattered more when rates were higher, pain inflicted on advisers by technology changes and variable service quality, among others.
Origin has influenced propositions
The sector has come to be made up of propositions with a range of origins. Some are product lines of the life company arm of multinationals. Some were entrepreneurial start-ups. Some were disrupter brands. Some grew from self-invested personal pensions (Sipps). Others started life as discretionary fund management (DFM) services. And that’s still only some.
This is one of the reasons that the sector is so complex and hard to make sense of; the general pattern is that a platform’s origin has a significant bearing on the type of proposition it becomes although, just to make things even easier, that is not exclusively the case.
It means advisers really do have a job on their hands working out which one, or ones, of the 25 plus out there can meet the needs of their client proposition(s).
The regulator expects whole of market assessment and records to be kept. That’s why due diligence has become such a big thing. It’s an industry in itself for advisers and providers, alike.
Push me pull you
At the same time as recognising and celebrating this diversity, we have to admit – counter-intuitively – that the sector is getting more and more commoditised, at least on the surface.
I don’t know a single platform that doesn’t know how to do a performance report or do a fund switch.
I’ve always been rude about people using automotive analogies for financial services, but in this way at least the platform sector does resemble the car industry.
Most cars are pretty safe and will get you from A to B in greater or lesser comfort, depending on what matters to you. The time it takes to get from 0-60 miles per hour doesn’t really matter all that much because you’ll mainly be stuck in traffic jams anyway (or, in industry jargon, T+3 transactions).
I don’t think trying to distinguish between platforms in terms of wrapper range, asset range beyond obvious limitations like exchange-traded fund (ETF) availability or even basic functionality is much use anymore. As a result, we think platform selection, or due diligence (if you must) pretty much boils down to two questions:
1. Is this platform a safe home for my client’s money?
2. Can this platform deliver my service proposition to my client?
Everything else is detail, but here’s the thing. It’s the detail that breaks it. That’s why vanilla tick-box due diligence doesn’t do it any more – all that can be reduced to the two questions above. It’s a deep understanding of process and capability that you need.
In fact, you should probably leave platform selection entirely to your office managers, administrators and paraplanners who actually use the systems. All you need to know is that it works.
Day of the Mifids
One test of what ‘it works’ means is coming up very shortly. As you may know, in January 2018 we welcome Mifid II to our regulatory canon. This is one bit of EU regulation we can’t duck – it is slated to be introduced well before Brexit happens and currently looks like it won’t be delayed again.
There is a lot to think about inside Mifid II, but here are a couple of things to occupy you. Firstly, reporting to clients is going to take a step up. You’ll feel this in multiple areas, but probably the most interesting for our purposes just now are that:
• Client valuation and performance reporting will need to be delivered quarterly.
• Clients will need to evidence they’ve seen/read it if it’s delivered online.
• If a portfolio falls by more than 10 per cent in a reporting period (quarterly) then the client will need to be told explicitly.
That all sounds fun, doesn’t it? So we’ve got lots more reports, none of which you like or which your clients read. But you’re going to have to deliver them, either on paper or online, and if it’s online then the client will have to tick to say they’ve read it. The regulations are silent on what happens if they don’t read it – you can lead a client to water, but you can’t make them think.
Will platforms do this for you? Will back office providers? Which client doc portal will you use and how will you cope with the ticky boxy element? Who sends the 10 per cent warning and how is it delivered? All things you’ll have to work through by January 2017. This is why it’s the detail that breaks things.
Here’s another nice little wrinkle. You’re going to have to tape client calls; this has been widely reported already. That’s fine if you use Voice Over IP telephony (Voip) in the office – virtually every Voip provider has a call recording package you can buy. But what if you use good old BT? You’re going to need a new telephone system.
Oh, and it applies to mobile as well. Vodafone and O2 have call recording packages for enterprise customers, but what if you do personal leases to keep the cost down and then just claim the money back? A lot of small businesses do. And what if you’re mid-contract?
There is a lot to get into around this, and we will do so in future. But what I want to stress is that now is a time for detail. Those who can get to grips with complexity will be fine. Those who stay at 30,000 feet and wait for someone else to fix it will be something else beginning with f.
Mark Polson is principal of platform and specialist consultancy the lang cat
