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Platform costs could go up as tech firms merge

Platform costs could go up as tech firms merge

Platform costs for advisers could go up as a result of providers facing higher technology-related costs.

According to a report by investment bank Liberum, entitled Investment Platforms: High structural growth, with some underappreciated risks, published yesterday (October 9), investment platforms could be facing higher tech costs in the near future because of recent M&A activity in the marketplace.

The number of companies investment platforms can turn to for back-end third party technology is currently a mere three: GBST, FNZ and Bravura.

But in July 2019, FNZ entered into a binding agreement to take over GBST in a deal worth $269m (£220m), which will shrink the market to two, with one player being the clearly dominant one.

This could create a situation where a lack of competition could lead to inflated costs for platforms, according to Liberum. The costs are then likely to be passed on to advisers and clients.

In terms of assets under management in the platform space, GBST currently provides the technology for 30 per cent, FNZ for 23 per cent and Bravura for 18 per cent.

Pershing, another firm, accounts for 1 per cent while the other 24 per cent of assets under management are held on platforms which have their own in-house technology.

The FNZ-GBST deal will see the combined business have more than 50 per cent (52 per cent) of the marketshare of all platform assets and 71 per cent of all platforms that use an outsourced technology provider.

Source: Liberum

According to Liberum, the deal will “greatly impact” technology provision in the platform industry and competition between providers.

Mike Barrett, director at the Lang Cat, thought this was a “fair assessment” of the market but thought it was too soon to tell whether prices would rise because of the merger.

He said: “The largest part of costs increasing in the act of out-sourcing is the move to the [technology] firm. It’s very costly and difficult but once you're there and over the implementation stage, the costs should be lower.”

Mr Barrett thought if the costs of tech for platforms were to rise then that extra cost would fall onto either the adviser or the consumer. He said: "The providers aren't charities and they will want to push the costs onto someone else."

But he also thought a hike in price was unlikely in the short- to medium-term as platforms were likely in lengthy contracts with tech providers with fixed prices, noting the issue could be a bigger problem for platforms which decide to out-source in the future.

PlatformAUM (£bn)Tech provider
Hargreaves Lansdown99.3In-house
Aegon/Cofunds91.1GBST/FNZ
Fidelity87.8Bravura
Standard Life59.8FNZ
Quilter56.6FNZ
Aegon/Arc49.1GBST
AJ Bell43.4GBST
IntegraFin36.4In-house
James Hay26.8In-house
Aviva26.3FNZ
Alliance Trust15.9GBST
Ascentric15.8Bravura
Nucleus15.3Bravura
Zurich10.9FNZ
7IM9.7Pershing
Other31.1n/a

Liberum also analysed which of the two business models — in-house technology or outsourcing — was the best option for platforms.