Before we get too negative, it’s important to note that the supporting consumer research (conducted by NMG) shows satisfaction with platforms is high, for both advised and non-advised customers. Breadth of investment choice rates particularly highly as an important factor, but charges carry the lowest satisfaction rating.
It is also important to note that there are other influences on satisfaction levels beyond the platform itself, with investment performance and the adviser relationships understandably being at the forefront of customers’ minds – and those customers naturally conflate all the different elements together. These issues are naturally more prevalent where there is no adviser present to tutor the client in the ways of righteousness.
But the interim report also fails to reflect that, even among advised platforms, there are numerous differences between the various models. The impact of vertical integration is touched on but not fully explored.
The terms of reference asked: “Do the drivers of profitability affect firms’ incentives… and what are the implications for investors?” And for me, this is the biggest miss of all in the paper.
The right incentives
I’m interested in the incentive issue more than anything else here. I buy that re-registering assets in-specie is hard between platforms, especially in complex model portfolios, and that this reduces the velocity of money moving around the market.
I get that some providers simply suck at admin, and that some fund managers still prefer carrier pigeon to daddy’s estate as opposed to automated transfer technologies. I get that the benefit of one platform over another is often marginal, and that it’s hard to get a client to pay for the time and effort involved. I get it all.
But I also note that none of the above issues seem to apply when a firm is acquired by a consolidator or a vertical integrator. At that point the money starts flying into the new solution like….I don’t know, a bat on amphetamine or something. The difference? It’s not the admin, it’s not the investment bit, it’s not that the client will stump up. So what gives? Could it possibly be that the incentives for the business owner(s) are proving stronger than the disincentive of the extra work? I think we should be told – and we weren’t. But we need to be in the final report.
Speaking of the final report, here’s our prescription for what we’d like to see. It comes in five parts.
1. Switching between platforms