So The Year Of Reactionary Self-Harm draws to a close – or will have done by the time you read this – and I think I can speak for most of us when I say it’s not a moment too soon.
As we forge towards the sunset it’s customary to think about what we’ve seen in the year past and muse upon what we’ll see in the year to come.
Robo-advice
From an adviser technology perspective, most of the exciting stuff over the last year or so has largely been aimed at dealing with the clients advisers don’t want. Or at least, that was the claim. Robo-advice, robo-investment, digital investment – no matter what you called them, baskets of exchange-traded fund (ETF) portfolios with snazzy front-end decision trees sizzled
this year.
If sizzling ETF portfolio baskets don’t sound attractive – not as attractive as scampi in a basket, for example – then you’re in good company, because most of the robos have struggled to get flows really moving. The biggest robo in the UK, Nutmeg, showed a glimpse of ankle in its most recent funding round press release and let slip that it now runs around £500m of client assets.
It’s been a slow and expensive journey for the Nutmeggers, but with any luck things will start to pick up and they’ll show that client acquisition isn’t as impossible as people say it is.
Pension reform repercussions
This was also the year when technology had to stay strong in the face of a stampede of pension withdrawals as the freedoms found their feet. Do freedoms even have feet? I’m not sure, but if they do then they found them; if not then you can pick your own figure of speech.
Some coped considerably better than others, and income functionality is now a genuine area of differentiation between providers and platforms.
Platforms
Last year, in my round up of 2015, I banged on about re-platforming and how we expected to see more of it in 2016, with some providers finally completing their journey. Well, we got that on steroids.
We reckon here at the lang cat that in the region of £200bn, or around two thirds of the total advised platform market, is or soon will be in flight for re-platforming.
Lots of that is driven by Cofunds shifting over to Aegon and Old Mutual Wealth’s eye-watering £450m shift onto IFDS’s new architecture. But Ascentric, Alliance Trust Savings, FundsNetwork and others are still getting their re-platforming on and there is yet more to come.
The consolidation wave
Speaking of Cofunds, and Axa Elevate (we weren’t speaking of Axa Elevate, but we are now), we finally saw the Tide of Consolidation break on the Beach of Repentance, or something like that.
In a sense this came as a relief at a market level; some kind of change had to come, as the state of play was getting ridiculous. Of course, if you work for one of the acquirees then it’s no kind of relief, and we need to remember that every high-level market movement comes with a human cost attached.
I’m fascinated by these moves, and not just because it gives me new stuff to write about. We’ve all said for a long time that platforms are a scale game and that they need constant development and attention.
Anyone who read L&G’s last set of reports would have been struck that it mentioned its platform business a grand total of zero times in its narrative. This is akin to your own parents not inviting you for Christmas, and is a great indicator of just how unloved Cofunds has been for a long time.
As it moves over to Aegon, it will at least and at last have a parent who actually wants it (although what Aegon will do with the institutional business is another box of frogs). This will be the mother of all re-platformings, from Cofunds’ current systems to GBST Composer.
Aegon has some experience of moving books of business onto its platform – it has practiced on itself first – but this is another scale entirely.
Talking of scale, the Cofunds deal puts Aegon’s platform assets at £100bn or thereabouts. That’s spread across its own book, Cofunds and a good chunk in its defined contribution business that it acquired from BlackRock earlier this year. So it’s not all one platform – but nonetheless, anyone who thought scale in the platform game was £20bn or so needs to readjust their set.
When we talk about the future big dogs, we now need to be looking at those providers with north of £50bn at least.
Can Elevate stay separate?
Standard Life plainly fancies getting there; it is now the largest advised platform by assets under administration, with £42bn across its Wrap, FundZone and Elevate brands at end of the third quarter of 2016.
But whereas Aegon has been explicit that it will shift assets across to its platform from Cofunds, SL has vowed to keep the two platforms distinct, albeit with some shared architecture underneath.
From where I sit, this looks like a move to reassure skittish Elevate supporters (many of whom went for it in the first place on the basis of it being ‘not Standard Life’) rather than anything that’s particularly tenable longer term.
It’s a truth universally acknowledged that when faced with losing something, people kick off (I think that’s what Austen was really saying). In my experience, Elevate users have long moaned about all sorts of things; now it seems many are deeply in love with what they had.
You don’t know what you got until it’s gone, I guess, but in the fullness of time I suspect economic realities will drive some rationalisation between Bristol and Edinburgh.
A new dawn?
So what of 2017? What will keep us entertained?
For existing platforms, I’m hoping that we’ll see some signs of life – we’ve been poking the sector for a while, looking for activity, and mainly being disappointed.
A lot of that is to do with navel-gazing and regulatory updates, but if we’re getting through all that then there’s a chance to see some more exciting developments.
To name just two, I’m keen to see better integrations – keep an eye on Nucleus here as it plans to develop open app programming interfaces to allow all sorts of interesting things from third parties – and radically improved client reporting.
Other themes?
We have Mifid II coming in early 2018, which may be as much as a year and a half before the two-year Brexit window comes to an end.
There is a bunch of unpleasant stuff hiding in and around this regulation, and getting it right will need platforms to really get a grip on what my old boss Geoff Towers, now chief executive officer at Pershing, calls ‘heavy tech’. So grunge and heavy lifting is definitely on the menu for 2017 –get your check shirts and Nirvana t-shirts at the ready.
Vertical integration
We’ll also see more vertical integration (VI) going on. Regulatory interest will sharpen in this area, I think – after the asset management market study’s interim findings, it’s far from clear how the (and I’m generalising here) overpriced, kludgy and highly profitable multi-asset offerings that form the profit engine of most vertically integrated propositions will fare.
VI can work, but every part of the proposition has to be double sharp. Not enough are just now. I also hope to see VI starting to take off with the adviser firm as the integrator rather than the integrated.
Specifically, we’ll see moves from firms like SEI, Pershing and Iress to enable firms to effectively bolt together their own technological offerings in order to house their propositions.
That’s only really doable by big ones at the moment, but water flows downhill and it’ll become more and more doable over the months and years to come. That’s where the real threat to platforms lies, I think.
Whatever it is, it’ll be fun to watch, and I’ll enjoy being rude about it on these pages. See you in 2017.
Mark Polson is principal of platform and specialist consultancy the lang cat
