True Potential is the adviser platform earning the highest margin on its assets under administration according to research by consultancy firm the Lang Cat, which indicated vertically integrated firms tended to have a higher margin than others.
According to the Lang Cat, True Potential, with platform assets under administration of £5.75bn, had a turnover of £47.57m and a yield of 0.89 per cent, making a profit of £21.3m in the year to 30 June 2017.
In contrast Aegon, which had the largest asset base of the platforms examined by the Lang Cat at £89.3bn, earned the lowest margin, 0.12 per cent on a turnover of £108.7m.
The most profitable platform in cash terms was Transact, which earned £37m in the year through a yield of 0.31 per cent on assets of £25.5bn, with a turnover of £80.2m.
Mark Polson, principal of the Lang Cat, who compiled the report, said there was no correlation between a platform's size and its yield on assets but there were signs vertically integrated platforms were more profitable.
He said: "The only real correlation is that those firms operating some level of vertical integration tend to achieve higher yield, which is far from a surprise."
True Potential told FTAdviser: "These figures show that combining True Potential’s platform technology with the benefits of scale is a highly successful approach, built around advisers and how they interact with their clients.
"We have taken that a step further and are preparing to launch our new and enhanced platform soon, with full ownership and control of the technology. We continue to believe that this is the right approach."
The data was published as part of the Lang Cat's quarterly Platform Market Scorecard, which looks at platform profitability and its impact on flows, as well as yield on assets.
AJ Bell, the second largest adviser platform, which is soon to float on the London Stock Exchange, had £36.45bn in assets under administration and a yield of 0.21 per cent.
Alliance Trust Savings, the platform being considered for sale by its parent company, had assets of £15.03bn with a turnover of £27m and a yield of 0.18 per cent. The platform lost £19.3m in the year to the end of June 2017.
Advisers are expected to perform due dilligence on the platforms they work with to ensure suitability but the Lang Cat warned platform size and asset flows were no determinants of profit in the current climate.
It said the demise of Beaufort Securities, declared in default in April, and new product governance rules meant advisers had to pay more attention to the financial health of the platforms they use.
It said total net inflows across the platform market were £11.8bn in the first half of 2018, down 15 per cent on the same period in 2017, but positive returns from investment markets meant total assets were 10 per cent higher at £528.8bn.
Mr Polson said: "We've established that we can’t conflate scale with profitability. But financial services has always been addicted to new business results as a sign of health, mainly because lots of people’s remuneration is linked to new business."
The Lang Cat looked at all firms in the market except those which are part of larger, integrated groups, such as parts of Aegon, Quilter, FundsNetwork and Zurich, where data was harder to obtain.
Mr Polson added the average pure platform charge, that is the charge without considering any ancillary revenues earned by the companies, was 0.3 per cent, which he said indicated there were "many deals" done in the industry.
He said: "It remains very challenging for advisers to unpick figures and work out how to use financial performance and strength as an indicator of suitability. It is something we have very much got our eyes on for the future."
His comments come in the context of Aegon, which has been mired in client complaints since it replatformed in May, and spent £3m on this in the first half of the year, vowing to spend more in the second half.
The company’s chief executive, Adrian Grace, said the business was part of a major international group and had "deep pockets" to fix the issue.
They also followed similar issues at rival platform Aviva, which struggled updating its technology from January onwards.
Philip Milton, who runs Devon-based Philip Mitlon and Co, said: "We have seen the communications and comment on these matters. In some ways it is interesting – in some ways it is not.
"Vertical integration in some respects is very good – we have been doing certain aspects of that for decades now. We are not ‘fund sellers’ but are also investment managers, a task more often than not out-housed.
"We have to prove that it is the optimum option for clients of course – which we believe we can satisfy very easily as the best way of ensuring they receive our day-to-day care and attention as opposed to some potentially ad hoc annual ‘look’ at the funds we may have bought some time ago and suggest a change or two.
"We buy-in the administration and IT sophistication from a third-party. But at all times, it would have to do what we want it to do for us and not what the platform provider necessarily instead wants to sell to us."
david.thorpe@ft.com
