AJ BellJun 19 2018

AJ Bell's rivals fingered in 'substantial' platforms fallout

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AJ Bell's rivals fingered in 'substantial' platforms fallout

Advisers should expect further trouble ahead as more platform providers upgrade their technology, a capital markets research business eyeing AJ Bell's upcoming stock exchange listing has warned.

An insight report into the platform and self-invested personal pension (Sipp) provider by Hardman and Co, published today (19 June), stated further change in the sector was inevitable as platforms adapt to be run on modern, scalable infrastructure.

But if done on a wholesale basis this is "quite likely to lead to substantial fallout to the benefit of the more stable competitors", the firm stated.

The report goes on to describe AJ Bell as having transitioned to updated technology in 2014 meaning "it is well placed to ride the growth in the market and pick up disaffected clients from competitor platforms which are only now upgrading and suffering from disruption".

The comment follows a myriad of problems in the recent replatforming of both Aviva and Aegon-owned Cofunds, which have led some advisers to review their clients on those platforms.

Scott Gallacher, of Rowley Turton Private Wealth Management, said he is considering moving clients from Cofunds to Transact as long as it makes commercial sense for them.

But the Hardman and Co report pointed to other potential problem firms, such as the Old Mutual platform (to be renamed Quilter), which is currently in the middle of moving to a new platform. 

The process started in June 2017 and is expected to be complete in the first quarter of 2019 at a cost of between £120m and £160m.

If the transfer does not go smoothly the business could start shedding assets as disgruntled advisers move on, an early copy of the report forecast, though this line was subsequently removed.

It stated: "Large organisations tend to be less adept at managing technological change and, to be fair, they tend to have additional layers of complexity. 

"Many of the players are themselves products of deals and mergers and trying to combine different platforms is fraught with difficulty. 

"No one would ever choose to start from where they start when deciding to upgrade their technology."

A spokesperson from Old Mutual Wealth said: "We have one of the leading investment platforms in the UK market.  

"Through our platform transformation programme we are enhancing our range of products and capabilities as well as our clients’ and advisers’ experience. The transformation programme remains on time and within budget."

Aegon's troubled integration of Cofunds and Aviva's disastrous replatforming experience are also highlighted in the report.

Aviva’s customers have experienced significant issues since the platform migration began.

The platform was unavailable for six days in January and, one day after it came back on stream, some advisers and clients were locked out again. 

Since then there have been a litany of problems with processing adviser charges, switching funds, processing income drawdown, facilitating Isa contributions and erroneous alerts sent out indicating huge value drops in client portfolios.

The acquisition of Cofunds by Aegon in 2017 led to customers being migrated to a new platform in the past month, and while Aegon managed to migrate client data and pay adviser charges, many of the administrative functions fared less well.

The episode led to Aegon pledging to compensate clients for any money lost as a result.

Users of Alliance Trust, Ascentric and FundsNetwork will all see substantial changes to their underlying technology, according to a recent Platforum report.

The Hardman and Co report expects future growth of assets held on platforms to come from four sources: existing assets which are not currently on platforms; new clients; new investments being added to existing portfolios; and investment returns.

It said: "There is still a vast swathe of assets not yet on platforms some of which can be transferred in the form they are currently in (e.g. Isas); some of which will be assets that mature (e.g. life policies) and need reinvesting; and, possibly the largest source of them all, savings pots from defined benefit pension schemes and insured personal pension plans being transferred out of segregated pools to be reinvested as Sipps."

It said the advantage of scale in these markets will probably drive continued consolidation in the sector, but warned any deal runs the risk of severe disruption as people do not like being moved from one provider to another without their free will.

Changes to regulation and tax rules could also upset things or create further opportunities, the report stated.

The market insight was published ahead of AJ Bell's initial public offering (IPO) on the main market of the London Stock Exchange planned for the end of this year or early next year.

Despite the anticipated problems, Alistair Cunningham, financial planning director at Wingate Financial Planning, said he was unlikely to move clients around platforms.

He said: "Service standards are fairly sporadic and we would rarely see it in anyone’s best interest to move over service – what happens if the service slips at the destination.

"Having seen the likes of Standard Life sell to Phoenix, I’ve had the feeling no platform is 'secure' and here is some evidence."

carmen.reichman@ft.com