Ah, autumn. As the mists roll in and orchard fruits ripen – and all that poetic stuff – the financial services industry snuffles to life like an inverse hedgehog hibernation. That is to say, the hibernation is inverted, not the hedgehog itself. It may or not be inverted; that’s irrelevant for our purposes today. Glad we’ve cleared that up.
Anyway, the point is that autumn is a fabulously busy time of year for platforms and technological Stuff that companies would like advisers and clients to use. There’s a perfectly rational reason for this. If you’re eating it on your 2017 numbers at this stage, October and November won’t save you, and not much happens in December.
So what you’ve got to do is concentrate on getting it together in the fourth quarter, so you have all of the kit that you and your guys will need for 2018.
As a result, we’re seeing a lot of programmes coming to fruition right about now. That doesn’t necessarily mean you’re seeing new kit and functionality out in the wild yet, but if you can peek behind the scenes at your favourite provider, you’ll probably see some developments hanging around backstage near the props table.
Familiar names
Some of this will be exciting new stuff, but sadly this year a lot of it will be related to the two big ‘must-do’ programmes I went into last time – Mifid II and the General Data Protection Regulation (GDPR).
We’ve been doing some asking around about readiness for Mifid II at adviser firms and providers. We found about four providers who we’d say are all over it, and a whole bunch who are going to be working very hard over the festive season. As far as advisers are concerned, the most common response we had was ‘what on earth is that?’ Which is not promising.
Outside of must-dos, we are looking forward to seeing Alliance Trust Savings and Ascentric move through their replatforming phase and get back into business as usual. Both platforms offer a different slant on what is becoming a very vanilla (at least at a superficial level) market, and both have had protracted replatforming issues.
Interestingly, both pride themselves on their exchange trading capabilities, and making sure that these capabilities are properly plumbed in is likely to have been at least some of the reason why these providers have spent longer on replatforming than anyone anticipated.
A good deal
That issue around dealing capabilities for exchange-traded assets is pretty interesting – at least for geeks like me – because it’s one of the few areas where you see genuine differentiation between platforms.
I know most advisers aren’t using exchange-traded funds (ETFs) or investment trusts all that often, let alone individual equities. But usage is on the up, constrained a little by the fact that any advantages in asset range or liquidity over mutual funds is all too often outweighed by punitive trading charges.
It’s no shock, then, that ATS and Ascentric, along with AJ Bell, Seven IM and Raymond James, are all reporting higher usage than average of these types of assets, and all offer all-in charging that includes exchange trading or very cheap trading.
When you look at this area in more detail, you can see that in the main, platforms fall more or less neatly into three segments, especially where ETFs are concerned:
AGGREGATED – in this model, the platform pretty much pretends that ETFs are mutual funds. It gathers all of the orders for that day up and trades them at a predetermined time.
This is nice and simple, although obviously it constrains you if you want to use more advanced trading strategies such as limit orders.
You’ll find FundsNetwork and Nucleus working this way, and it’s one option offered by Transact, Elevate and Novia.
QUOTE AND DEAL – this is sometimes called ‘point and shoot’, and is the classic trading console experience where you look through the platform to a stockbroker (normally Winterflood or Stocktrade) and get a live price for your trade. You can accept or reject it and try again for a better price if you want.
This gives you loads of control, but usually you’re just heading through to one market maker, which might mean you’re not grabbing the best spread.
For a mainstream, highly liquid ETF that won’t matter too much, but for very high volumes or for less mainstream ETFs it’s nice to have access to more than one source of liquidity. Most of the FNZ platforms – Standard Life, Zurich, Elevate, etc – offer this, along with Transact, Novia, Wealthtime and Aviva.
DEALING DESK – this is where the trade doesn’t go straight through, but hits the platform’s in-house dealing desk – the desk then ‘works’ your trade to try to get you the best spread.
Dealing desks will use tricks of the trade, so for example it’s not ideal to trade fixed interest ETFs early in the day. No-one has valued the underlying assets yet and overnight money is flooding in – hold for 30 or 40 minutes and you can narrow the spread considerably. Again, you’ll find this from ATS, Ascentric, Seven IM, AJ Bell and Raymond James.
There is a fourth group who don’t offer ETF assets at all, but they’re reducing in number all the time.
Price points
You’d think that the more highfalutin’ the trading experience, the more expensive it would be, but that’s not the case. For example, your Seven IM and Ascentric dealing is all included within the 0.35 per cent platform price. AJ Bell charges you a quid a shot inside models.
Up the other end of the park, though, Aviva will have £25 a pop off you, and Nucleus charges 0.15 per cent with a minimum of £13 a trip.
Clearly, where costs are at those higher levels, the platform will point out that there is little or no demand and they’re offering it as an accommodation.
Demand will, equally clearly, stay low until equity charging is either at very low or no additional cost. Chickens and eggs and all that.
So there’s just one area where we still see genuine differentiation between platforms. There are others, and it’s in these areas where we’ll see various providers really trying to accelerate their pace of development.
Regulation
Regulatory change does throttle this back, but I can’t remember a time when we didn’t have loads of regulation change to worry about, so we should really be used to it all by now.
The upshot of all this for adviser firms is that if you’re thinking of reviewing your platform choices, now is an excellent time to start the ball rolling. You’ll be in a period where everyone is keen to show you what they’re bringing to market, and you also owe it to yourself to ask your current platforms and any you’re considering for detail on their approach to Mifid II and GDPR.
There’s a great chance for platforms to make your lives considerably easier through all this while ensuring that they’re doing the right thing by your clients. All that remains is to see if they grasp that chance.
Mark Polson is principal of platform and specialist consultancy the lang cat
