PlatformAug 2 2018

How will platforms look in future?

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How will platforms look in future?

Aegon is reported to have said previously it would like to become a ‘platform consolidator.’ It would be the first of its kind if that ambition was fulfilled. 

Hypothetically, when smaller platform businesses start to flounder it could be Aegon swooping in to snap them up and then assimilate or integrate them, thereby increasing its own scale even further.

In the long term this seems plausible, but in the near term one would imagine Aegon has its hands too full with the Cofunds project to take on additional consolidations.

How likely is it the market could continue to shrink into the hands of ever fewer, larger businesses, as many in the sector predict?

One factor which plays in favour of the increased consolidation prediction is the fact there are so few technology suppliers supporting adviser platforms.

Since IFDS lost the Old Mutual Wealth replatforming contract last year, with FNZ picking up the project instead, there are now really only three main platform technology companies at work in the UK: FNZ, GBST and Bravura.

Making it easier to transfer assets across platforms will mean that legacy platforms lose assets more quickly than in the past.Heather Hopkins

Lang Cat points out in its 2018 Q1 Platform Market Scorecard the big three technology providers are on course to control 85 per cent of UK advised platform assets under administration.

This means, in theory at least, there will be more and more platforms well-matched for mergers because they will already be running off the same technology. 

However, Mike Barrett, consulting director at Lang Cat consultancy, disagrees with this theory because he says the evidence does not support it. 

“From a technology supplier point of view, on the one hand it would make the consolidation easier if [the merging platforms] are using the same technology supplier.

“However, the reality is it will not make it radically easier; Standard Life and Axa Elevate are both on FNZ, but the reality is the technology they are on and code bases they use are dramatically different. If you are consolidating onto one technology platform that will take a while.

"It is not a cut and paste job,” he suggests

Smaller is better?

Heather Hopkins, managing director of consultancy Next Wealth, is optimistic about the direction of the platform market since the Financial Conduct Authority’s (FCA) interim report on the platform market study was published. 

She said the fact the regulator is seeking to increase the ease with which clients can switch between platforms will increase competition in the market. 

Competition has been a key issue for the regulator which has been concerned there is too little of it, resulting in poorer deals for platform clients.

“With the increasing use of platforms, and the issues raised by our previous work, we want to assess whether competition between platforms is working in the interest of consumers,” explains Christopher Woolard, executive director of strategy and competition at the FCA.

Ms Hopkins observes the increased competition the FCA is striving for would lead to stronger smaller players, which could mean fewer rescue sales of platforms, as has been seen in the past.

“The FCA’s Investment Platform Market Study Interim Report took aim at transfers. This is good news," she says. 

"Making it easier to transfer assets across platforms will mean that legacy platforms lose assets more quickly than in the past. This will be an important driver of competition among platforms and consolidation.” 

Mr Barrett reads the report a different way, predicting instead it could lead to increased consolidation because it signals it will not be taking disruptive regulation as far as it might have done. 

He notes: “The interim report broadly gave the industry a thumbs up, so the risk of any potential disruption for any potential consolidations due to regulatory intervention has been reduced.”

The platform industry needs to be innovating to make things better for clients.Jeannie Boyle

Bella Caridade-Ferreira, chief executive of Fundcsape, agrees with Ms Hopkins, the landscape is changing favourably for smaller platform businesses since the FCA’s interim report published in early July.

“I would expect the FCA will require platforms disclose fund pricing as well [as clearer platform fees]. That is where it is going to get interesting.

“Smaller, nimbler platforms, they will push back on that and pressure for similar pricing," she adds.

Market innovation

In fact, Ms Caridade-Ferreira is so optimistic about emerging platform companies, she said she expects to see the opposite of consolidation taking place.

“I think we will see a lot of advice companies go direct to technology companies and say ‘we do not need all the bells and whistles. This is what we sell - can you build a bespoke platform for this?’

“There will be a proliferation of adviser wealth manager-led platforms,” she predicts. 

This will be music to the ears of Jeannie Boyle, executive director of Brighton-based EQ Investors, who is keen to see a future platform market full of innovative solutions from new entrants.

“I do not know if there would be platform mergers, but if there will only be two players, where will innovation and impetus to drive costs down come from?" she asks.

“The platform industry needs to be innovating to make things better for clients. 

“That is why we work with Parmenion and we appreciate the work they have done in helping people access financial services. Platforms have a key role to play in democratising advice.” 

There is always the possibility of a more leftfield player disrupting the market and this is something Poole-based PFM Associates adviser, Martyn Brown, is keeping a weather eye on. 

“I do not know about likely but it is very possible in 10 years’ time we could have a disruptor entering the UK market, either something like the very sophisticated investment platforms you see in China, for example, or perhaps a retail player like Amazon or Facebook that would really shake things up by consolidating portions of the market," he explains. 

“I would expect to see the market dominated by a small number of large platform companies in years ahead, much like in the US, alongside lots of niche offerings from smaller platforms.” 

Christine Dawson is a freelance journalist