What next for the platform industry?

This is often followed by a period of consolidation across an industry as market participants seek to add profit from economies of scale, as the opportunities to do so from innovation diminish.

Then there usually follows a fresh wave of consolidation as a new generation enter an industry. 

The UK adviser platform industry arguably followed this pattern, with companies started from scratch such as Nucleus, Transact and others driving innovation, but as the industry reached the peak of the S, the returns and innovation declined and platforms began to buy each other, or be taken over by private equity businesses eager to achieve economies of scale. 

People will start to build new platforms that are basically just a collection of micro-services Emma Napier, Bravura

Among the principle beneficiaries of innovation within a sector are the customers – in the case of platforms, this is advisers. 

So what might be in the next wave of innovation for the platform industry? 

For Emma Napier, who works as part of the business development team at platform technology provider Bravura, the direction of travel is clear, with platforms increasingly using external “bits of kit” that do a specific job in order to make their overall offering better, rather than trying to do all of this work in house. 

Ben Hammond, platforms director at consultancy Altus, says the platforms of the future will do only “what they are good at”, and outsource the rest. This model is called using 'micro-services'.

Napier says: “People will start to build new platforms that are basically just a collection of micro-services. A lot of discussion in the industry is around price, but I think that will also come down to, does the adviser want all of the bells and whistles that a platform can do, that is, do they want all of the micro-services or just some of them?

"By operating in this way, each platform can continue to exist, but be offering something different to each adviser. That is where the next lot of innovation is going to be, it will not be about a big bang moment.” 

Hammond says it will not be a case that substantial new technology is created to enable this, rather that the technology exists but platforms will begin to use it in a different way.  

He says the second way in which this will develop is that more “white labelling” will become possible, with advisers able to have substantially more control over the platform they get. 

He says: “I think the technology is evolving to the point where white labelling will happen much more frequently, it is certainly an area that has been growing for many years.”

Mike Barrett, consulting director at the Lang Cat, says the increased technological capabilities available to platforms are likely to mean that how advisers interact with existing clients changes. 

He says: "The use of technology to communicate with clients is now almost ubiquitous. Our research indicates that as things return to some sort of normality, advisers are likely to want to retain face-to-face contact with new clients, but increasingly rely on technology solutions to report to and serve existing clients.

"As advisers become more confident with their own advice proposition and use of technology, I expect them to become more demanding of the platforms they work with.”

Automation

While advisers typically understand the benefits of micro-services, Napier says there continues to be a reluctance to use technology, specifically artificial intelligence, to perform tasks for existing clients, in the way Barrett has identified. 

She says: “Whenever I have spoken to an adviser about AI they immediately switch off because they think it is just a computer speaking to people and they know how impolite that is. But if you think about it as waiting times, when I was an adviser myself and phoning through to places to get valuations, and you would potentially have to phone four or five different places for different things, and spend hours on the phone, AI allows you to fast track all of that.

"You can point the AI at a very specific task and complete it, without having to do hours on the phone. If you could just log in to a specific area and immediately with a policy number get a valuation, that would save a lot of time and energy. AI can be configured to do this, and other monotonous tasks, and it shouldn’t be the case that an adviser has to buy an additional bit of software. It should actually now be part of the micro-services offered by a provider.”

She adds: “As an industry, I think adoption of AI is one area where we are way behind.” 

Barrett says advisers that his business has been speaking to say they want to continue to have face-to-face contact with clients, particularly newer clients, but are happy to have some of the ongoing processes for established clients automated. 

He says this is likely to involve: “Being able to check whether the targets and goals needed from the investment portfolio are actually being hit, but also to incorporate elements of a client’s wealth, such as their property. 

Hammond notes the role an adviser plays in tax planning is likely to increase in the years ahead. 

In terms of the investment case for platforms, Ben Needham, equity income fund manager at Ninety One, says listed platforms are likely to prove good investments in the years ahead as they can add new clients at relatively little cost, meaning the extra revenue generated from each new client goes straight to the profit line.    

Among the platforms in which he is invested is AJ Bell. 

He is keen to avoid investing the platforms that are doing the acquiring in the present wave of consolidation, as he says the process of integrating two different platforms is expensive and also has the potential to lead to reputational damage. 

Barrett adds: “Platforms are a reflection of the advice profession. They are only successful if advisers are successful, and they build propositions that meet adviser needs. For the former point we have no concerns; many adviser businesses are in an even stronger position post-pandemic than they were immediately prior. The demand for advice remains strong, and consumer behaviour and demographics show this should continue to remain the case.”

David Thorpe is special projects editor at FTAdviser