After years of speculation, the starting gun has finally been fired on a period of merger and acquisition activity among investment platform providers. Gone is the longstanding uncertainty over the future of Cofunds, sold by Legal & General to Aegon last August. Axa, too, has taken a step back, having offloaded its Elevate business to Standard Life in May.
But these changes bring new disquiet for the advisers who rely on platforms to invest their clients' money. Estimates from the Lang Cat, the consultancy, suggest that £207bn out of a total of £386bn in platform assets under administration are currently “in transition”, partly as a result of these deals.
The complexity arises from the technology upgrades that are either ongoing or about to begin at a number of providers. From Aviva’s shift to a system powered by FNZ, to Old Mutual Wealth’s move to IFDS, to Aegon’s integration of Cofunds, overhauls are the order of the day in more ways than one. These projects can be of a significant scope: OMW’s move has already cost £450m.
Technology, the modern consumer is repeatedly told, is making lives simpler, and providers do seek to ensure they provide improvements which genuinely help users. But there can be problems along the way. The recent travails of a man from Sussex who spent 11 hours trying to bring his wifi-enabled kettle to the boil may appear an extreme analogy, but when it comes to platform upgrades, a long outage as a result of doing things differently is a familiar fear for intermediaries.
Aegon chief distribution and marketing officer Mark Till acknowledges: “We can’t afford to see advisers unable to operate their business. The key thing is how you release additional functionality so advisers get the benefits of the tech upgrade in such a way that they don’t lose their [existing functionality].”
OMW head of UK proposition marketing Tom Hawkins concurs: “Our whole transformation is based on not disrupting advisers’ business”.
Mike Barrett, consulting director at the Lang Cat, has a more cautious take on the replatforming process. He notes, “There is not one recorded instance of replatforming or tech migration going smoothly.” In 2014, for example, Nucleus’ replatforming resulted in trading difficulties for users that lasted three months, for which some clients were subsequently compensated.
Behind the curve
The problem is particularly acute because many platforms, if not most, use systems which are some way behind the curve. This is supported by findings from Money Management sister title Investment Adviser’s 2016 platform survey (see Chart 1).
As Clive Waller, managing director of consultancy CWC Research, puts it, “all platforms are on old technology, even the new ones.” Consider the difficulties that often arise from a simple iPhone update, and then ponder that platform upgrades are the equivalent of simultaneously shifting multiple users from a legacy service to a different operating system entirely.
This does not mean advisers should panic, and extreme reactions are indeed unlikely. If nothing else, changing platform is “a very expensive business; around £600 per client”, according to Mr Waller. But it does mean users should be aware of the risks and plan ahead. Some of this is common sense; when an upgrade is on the verge of completion, administrative staff and paraplanners should be aware of how to basics of the new system - how to process a trade, switch business, and so on.
Richard Goodall, distribution and marketing director at Parmenion, adds: “There is a risk that providers explain their latest features exclusively to advisers, when they should also be educating the support team on the benefits available.”
The process works both ways, so advisers should press their case if platforms are failing to give adminstrative staff training on new systems. Ultimately, however, there is only so much an user can do come the point of implementation. Success will depend on the technology being up to the task at the first time of asking.
Earlier on in the process, it is a different story. Adviser platforms increasingly rely on external providers to provide their back-end technology, as two forthcoming examples illustrate: OMW’s move from proprietary technology to IFDS, and FundsNetwork’s shift from its own technology to Bravura.
In the past, advisers had been loathe to consider technology at all when conducting platform due diligence. According to a 2015 survey by the Platforum, four out of ten said technology was not especially relevant. But replatformings should prompt them to take a closer look at these tech providers.
This is easier said than done, as Mr Barrett points out. “Advisers are not going to be able to go in and do due diligence on FNZ’s system. It is a case of asking the right questions [of platforms] and thinking of the wider context.
In the most significant cases, a replatforming – when it comes as part of an acquisition – may require a suitability review. Aegon’s recent update on its takeover of Cofunds saw it insist that the integration will not require such reviews on the part of advisers. Mr Barrett says he is “always slightly suspicious of providers saying something won’t trigger a full suitability review” but concedes advisers “should not press the panic button”.
“There is probably a balance to be struck. If you are doing a review more generally, you should ask if this provider is a safe home for a client’s assets, and whether they can provide the service and functionality which you need to deliver advice properly to your clients”.
Adviser wants
There is plenty of time in which to engage. Replatformings are lengthy processes, and two of the adviser platform big three – OMW and Cofunds – will not finish rolling out their changes until 2018 or beyond. So while average intermediary may not think too closely about platform technology during a typical day’s work, that may be about to change.
Understandably, both Aegon and Old Mutual Wealth are engaging with adviser firms to find out what is at the top, and bottom, of users’ wishlists. Aegon has codified this process further, establishing an ‘advisory board’ that will meet quarterly in a bid to ensure the firm remains up to date with users’ preferences.
This is easier said than done when taking into account the occasional disconnect between adviser expectations and providers’ aims. Some intermediaries view their platform as a simple utility, effectively an administrative function for their business. There are plenty of improvements still to be made on this front by providers. But upgrades also bring with them the inevitable prospect of new bells and whistles as platforms seize on the chance to differentiate themselves from the competition.
Those embarking upon overhauls are aware of the risk that they lose sight of their principal function. “The simplicity of our platform, how easy it is to put a new Isa on there, or top up, or switch investments, is something that is overlooked too easily in my opinion,” says Mr Hawkins.
Aegon’s Mr Till, who chairs the business’ advisory board, says for his part that the firm’s initial feedback boiled down to one thing among advisers: “the degree to which the functionality they had would continue to be present”.
New functionality
Changes are planned nonetheless. Aegon has pinpointed Cofunds’ move to a paperless system as one early target, and Mr Till says a number of different developments will be rolled out this year. The ability to trade a wider range of products, such as ETFs and investment trusts, is also likely to follow on both platforms. Aviva, meanwhile, will be keen to exploit the improved links to discretionary fund managers that the FNZ technology will offer, according to Mr Barrett.
With large projects still in the planning stage, advisers should be clear in their own minds what they want from a platform. Parmenion’s Mr Goodall says: “Advisers need to ask if they control their development roadmap, or does their next best idea wait on a backlog with other platform developments. They need to be confident that they control whether their ideas and requests get developed and when.”
“Technology has the ability to systemise process, drive out human error, better promote firms, save man hours in administration, generate suitability reports, and save time in business management. Successful advisory businesses are time poor.”
Often, however, there is a divide between what users say they want and what they are likely to actually use, according to CWC’s Mr Waller.
He highlights findings from a 2015 survey conducted by the consultancy and the Lang Cat, which found “very little correlation between what advisers said they wanted platforms to do, and what they used, and most of them were still happy”.
“Are [additional functions] that important? A platform should do what you need it to, rather than trying to do everything. Everything does not need to be industrialised. If you need a platform that can provide access to DFMs, look to the likes of Novia, Ascentric, Nucleus. But don’t look for everything [in one platform].”
The study in question focused on platform functionality when it comes to decumulation – an increasingly important topic in light of the pension freedoms. In general, as Chart 2 shows, advisers were found to be relatively happy with their options, despite the reforms having been announced just months before the survey was conducted.
There was less certainty on specific questions, such as whether platforms could manage cash to ensure a regular income is paid. In total, 17.5 per cent of respondents said their platform could not do this, or they did not know the answer. However, as Chart 3 indicates, holes like these had not translated into dissatisfaction with their platforms of choice.
Elsewhere, consultants say there are still plenty of improvements that can still be made to basic platform functions such as client reporting. But given advisers are juggling multiple platforms but favouring individual systems elsewhere, integration with external tools is more becoming important than the presence of internal ones.
Platforms should be able to work smoothly with the constants in advisers’ life: the likes of FE Analytics’ data and FinaMetrica’s risk-profiling tool. Those now prioritising front-end improvements, such as Nucleus, are focusing on ensuring that third party tools can be successfully integrated into its system.
Brave new world
One final question to consider is exactly what kind of service platforms see themselves as providing. Very few now rely on the simple administration function alone; the rise of vertically integrated companies, with DFM and product provider arms of their own, means the platform itself is often just one piece of the puzzle.
For advisers, too, priorities may be changing. Mr Waller is sceptical of platforms offering reams of functionality, but he is an enthusiast for the benefits of automation in some cases.
“Advisers will need to automate more. I don’t think advisers are taking enough notice of robo, not in terms of totally automated non-advised business.
“I think there is going to be a change in the way that costs are disclosed, and that means platforms and advisers have to look at themselves. Different bits of technology do different things. Which bits should the client pay for? Should they pay for back-office custodian training, should they pay for tax wrappers?”
In the short term, however, platform upgrades represent a necessary evil. The likes of OMW believe the work they are putting in now should make future, smaller changes simpler and easier to digest. Until then, vigilance is required, according to Mr Barrett.
“Advisers are definitely aware these changes are difficult to implement, and can be disruptive, but I do worry they don’t recognise how significant they will be when they come through. Generally, it is just about getting things over the line without major disruption to the business.”
