Engaging with next-generation investors

This article is part of
Platforms Special Report - November 2016

Engaging with next-generation investors

Platforms have become a necessary tool for advisers as they help clients plan and deliver their investment needs.

The platform industry is now bringing in increasingly advanced technology in order to operate more efficiently: there has been growing pressure on facilities to keep up with regulatory requirements and remain competitively priced. 

As a result of these pressures industry consolidation began in earnest this year, with most notably Axa UK selling its Elevate platform to Standard Life – a deal that was completed this month – and the sale of Legal & General’s Cofunds platform to Aegon after it suffered outflows.

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Tom Hawkins, Old Mutual Wealth platform proposition head, says: “For some time there had been speculation about possible consolidation in the platform market. In the early to mid-2000s a handful of firms pioneered platforms, with a larger clutch of followers trying to play catch-up. Many did and there are some young, successful platforms.

“But as the market matured, it became clear that some participants would probably be crowded out. That speculation became a reality in 2016, with a number of consolidation moves announced.”

Novia chief executive Bill Vasilieff says the two recent exits from the platform industry are not examples of consolidation but “an admission of failure”.

“The business model was wrong [inefficient] and the owners couldn’t make money, so they exited,” he explains. 

“This fundamental problem of efficiency still exists. The issues facing platforms haven’t really changed, but at the top of the list is probably the cost and utilisation of technology, which can be horrendous. The other issue is that some of the big institutions see a platform as a way of selling funds, but are now taking the view that they can push funds just as easily by not owning a platform as by owning one. So if they are making a financial loss on the platform, it is an easy decision to decide to exit.”

Mr Vasilieff adds: “My guess is that there are other major players out there still burning money at a significant rate and I can see them pulling out.”

Mr Hawkins agrees the industry should expect to see more consolidation in 2017 and beyond.

“There is no need for advisers to panic, but we do anticipate that where advisers have clients invested through platforms that are changing hands, they will need to revisit due diligence and suitability assessments,” he says.

“Future investment in functionality, possible price changes, questions over the level of face-to-face support offered by new shareholders and the prospect of integration difficulties – advisers will be looking for reassurance on all these issues and may prefer a more stable home for their clients if they cannot get it.”

So what should advisers look for in a platform?