What platform mergers might mean for IFAs

Last year, Legal & General made headlines when it sold the Cofunds platform to Dutch-owned insurer Aegon in a £140m deal. 

The size of the deal - with Cofunds being the largest platform in terms of assets under administration - has raised questions for advisers and wealth managers alike.

According to Douglas Spence, senior investment director for Investec Wealth & Investment: “The latest wave of consolidation in the platform market means advisers need to reassess which providers are financially resourced and, importantly, have the capability to adapt their proposition.”

Consolidation creates a “tricky” situation for advisers, however, especially those whose clients have changed platform by default of acquisition, Clive Waller, founder of CWC Research, explains.

He continues: “Acquisitors will say it is not an advisory issue. Most advisers will disagree. Ultimately, advisers will have to be pragmatic or face a high cost, especially if they get into conversations with clients.”

Specialists will continue to thrive if their proposition and service is superior. Eric Welsby

Mr Waller adds greater regulation will also drive more confusion around consolidation. He explains: “There will be more mergers when re-registration rules are introduced. The trouble is, legacy platforms appear to have reducing value.”

Mark Polson, founder of The Lang Cat consultancy, says as some advisory firms may “hate certain providers, which means a takeover could lead to a change in usage”, consolidation could mean some adviser firms switch business. 

But he adds: “Generally speaking, this kind of M&A activity is exciting for keyboard warriors but there is relatively limited impact for advisory firms in their day-to-day work.

“The one exception to this is when it involves replatforming, as this could have a major effect on service and administration, so it needs to be managed carefully.”

Service

Service is a key point for advisers to note, according to Eric Welsby, head of partner management, EMEA, for Bravura Solutions. He comments: “The biggest effect on advisers of a replatforming exercise as the result of M&A activity is the service disruption.

“Migrations of large books of data are complex and difficult, and the platforms will seek to minimise impacts through a period of transition.

“However, advisers will need to be realistic about the level of disruption they can expect as the platforms merge their support infrastructure and staff.”

For advisers, any M&A activity or noise should signal an opportunity to review what sort of service, costs and choice their platform is giving their clients. 

This is the view of Kevin Russell, proposition director for SEI Wealth Platform. He says: “This is a time for advisers to refresh their due diligence when it comes to their platform of choice.

“If they are using a platform which is up for sale, run unprofitably or run on ageing technology, then it could create issues for their own businesses.

“In such an environment, platforms are potentially putting their own issues ahead of clients’ needs.”

Future moves

Most commentators in this guide expect more consolidation in the years to come. 

Mr Spence adds: “It is highly feasible the consolidation of platform providers will continue, as the increasing costs of legislation, regulation and system improvements are felt, as well as the pressures from consumers for lower costs and greater value in a low-return environment.”

Mr Polson agrees there will be more acquisitions coming along as platforms aim to compete in terms of scale “but there’s no rush”.

“Platforms are a scale game,” he says. “The deep-pockets argument was only ever partially true. Aegon’s purchase of Cofunds has demonstrated that scale is no longer £10bn or £20bn but somewhere between £50bn and £100bn.

“It will be hard for firms to get there organically so we expect to see further M&A activity to get the numbers moving.”

Echoing this is Mark Till, chief distribution and marketing officer for Aegon, who says: “There has to be more consolidation. We believe platforms will need to have more than £60bn to remain competitive and viable in the long-term.

“We believe this level of assets is required for a sustainable business model. As well as demonstrating commitment to the market, it gives platforms the ability to reinvest to drive improved user experience and lower prices over time.”

He believes as scale is crucial, there will be four or five “scale players” dominating the market by 2020, and up to six smaller boutique players.

However, Mr Waller thinks there may be a proliferation of ‘platforms’ in the years to come, rather than a contraction of the market.

He explains: “There will be many more platforms: robo, cyborg, vertically integrated, and so on.

“Technology will enable so much more – which will be a huge problem for legacy platforms. Throw in blockchain and artificial intelligence, and the picture gets truly murky.”

Moving beyond the vanilla retail platform market will give businesses a great chance for real differentiation and hopefully a secure and predictable future. Mark Polson

According to Mr Welsby “the market is cyclical” so any consolidation or proliferation is driven by market forces. He opines: “Specialists will continue to thrive if their proposition and service is superior.

“Aggregation of assets with the big four peaked and has now started to disaggregate.

“This will change again through acquisition, but over time specialists and disruptors will erode this, and the next phase of the cycle will begin.”

Some sale rumours have been perpetuating for years: in 2014, wrap platform Transact had been up for sale, but by the end of the year it announced it was no longer in the market for a new owner. According to the latest news, it is eyeing up a listing in 2018.

Create your own

In March, a report from SEI Wealth Platform, carried out by consultancy The Lang Cat, found more adviser businesses are starting to develop their own platform capability.

The report found a model was emerging that “allows adviser businesses of a certain scale to create their own platforms in conjunction with organisations such as SEI, effectively becoming a new kind of advice firm”.

Such a move, the report has suggested, would be feasible only for those advisory firms with more than £500m in assets under administration, as those with less might have to think about whether such a solution would be required for their business model.

But for larger firms or national ones, such a move could be worthwhile. Mark Polson, founder of The Lang Cat, says of the report: “The change in the landscape we are talking about is significant.

“However, for high-growth or larger firms who want to look at something genuinely different, we think moving beyond the vanilla retail platform market will give businesses a great chance for real differentiation and hopefully a secure and predictable future.”

simoney.kyriakou@ft.com