PlatformJun 26 2019

Helping advisers take platform powers into their own hands

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Helping advisers take platform powers into their own hands

One of the nicest things about living where I live is that we get school summer holidays a month before people in the southernmost extremity of this not very united kingdom. So when you’re reading this I shall be somewhere agreeable, conducting extensive quality control over the local food and drink. 

But if I wasn’t, I’d probably be thinking about how the adviser market is shaping up based on the latest data from the Financial Conduct Authority, and what that might mean for the technologies we all use or write about or work with in the next few years.

Not everyone knows this, but the data you supply to the regulator in terms of your Retail Mediation Activities Returns eventually surfaces in a bunch of pretty useful tables and charts. You can find this on its website, and the Personal Finance and Investment Management Association also does a useful deeper analysis each year, which costs a little to buy but is well worth it.

Last year’s returns are just starting to come out, and there are some interesting nuggets in there. For example, there are now 42 firms in the UK with more than 50 advisers each. Those 42 companies – about 1 per cent of the total – have about half of all the advisers in the UK. There are just over 500 firms with between six and 50 advisers, and the rest are (spoiler alert) smaller than that. Nearly 90 per cent of companies have fewer than five advisers.

Nonetheless, turnover and profitability are both moving in the right direction. Firms in that six to 50 segment are particularly interesting, with an average pre-tax profit at the thick end of £500,000.

We don’t have statistics on how much these companies look after in terms of assets under advice, but with a turnover in respect of retail investments in the region of £2m on average, and (let’s say) a yield on assets of around 80 basis points – to allow for some variability in ongoing charges and also some initial-type revenue – some basic arithmetic gets us to an artificially neat average AUA of roughly £250m (obviously there will be a big spread in this).

Advisers turned providers

This is important in light of one of the big emerging trends that we see emerging – and one which I’ve written about on these hallowed pages before. That is the idea that the adviser firm stops consuming ‘normal’ retail financial products (especially platforms) and starts to assume some of the responsibilities and benefits of being a provider in their own right.

The reason the £250m figure is interesting is that the inflection point at which this would become economic used to be at least £1bn; maybe £2bn AUA. A couple of years ago I’d have said it was around the £500m mark. But now if you asked me I’d probably pick £250m AUA, and if you were one of the companies right in the middle of that 500-firm segment it would probably be relevant to you in a way today that it certainly hasn’t been before.

This isn’t because it’s any easier to do any of this stuff. If you’re going to derive revenue from providing platform services then you actually have to provide them. You can’t stick a logo on someone else’s system and whack 25bp on to your charge. 

That means you’ll be involved in becoming a platform operator, albeit one that outsources a huge amount of the day-to-day unpleasantness to an underlying provider. You’ll be involved in the control environment, in middle and back office, and you’ll need your safeguarding permissions in most cases. 

All this comes at a cost, usually in headcount, and especially in people who know their way round the client money urtext, the Client Assets Sourcebook, and now the senior managers regime. You can make money doing this, but you have to want it.

The thing that’s opened this market out is a group of providers who are starting to switch on to the potential of helping firms do this. To my mind there are three main contenders here – Embark, Hubwise and Seccl – all at different stages of their journey.

The big three

Helpfully, for those of us who don’t remember things like we used to, they go in alphabetical order in terms of how mature their proposition is. 

Embark – 9 per cent owned by the provider of its underlying technology provider, FNZ – is the longest established and has a wide and varied book of business. But at least some of its energy is in providing what I’ll call ‘deep white label’ services to firms. Companies in this context can also include smaller providers who don’t want to do all their own stuff any more. For example, Embark has a really nice signature-free, self-invested personal pension product that now sits inside Nutmeg, among others.

The way to think of it is that if you wished you could approach FNZ directly to build your own platform, but you can’t afford it because you’re not Standard Life or Quilter, then you have a way to access that technology with a lower price point. You give up some control, to be sure, but you have more control than if you were simply consuming one of the retail FNZ platforms. 

Hubwise has its own proprietary technology and has been making waves with a very low-cost offer to providers. If you know the Figaro share-dealing system, then you know the folk behind Hubwise, hence they have some experience to draw on. It has deals in place with Tenet and with Tatton, so smaller firms can access what it does too. 

As you’d expect, if you approach Hubwise looking to partner up on an ‘XYZ IFA platform’ type deal, then you’ll have more control over what you get than if you approach as a smaller firm that’s a member or supporter of those organisations.

In the driving seat

It’s early days for Hubwise and by all accounts the business has been a bit overwhelmed with interest. We’ve had a look at it and there’s lots in there (it’s in the Lang Cat’s platform directory if you want to take a look), but it’s important to stress that in this very low-cost model the adviser really is in the driving seat. That means that a lot of the support you’d normally enjoy from a retail platform simply isn’t there; you have to be much more self-sufficient. 

This isn’t unique to Hubwise; you see this with other technologies too. But it needs firms to approach it with a realistic attitude to what a platform structure operating at something like the third of the cost of some others can realistically deliver.

The third contender is just starting to hit the market. Seccl is run by Hugo Thorman, late of Ascentric, and David Harvey, platform genius and uber-nerd (I mean that as a compliment). Seccl is, again, a very low-cost offering that will bill the adviser firm rather than clients. Typical costs are around 10bp, which is derived from a mix of per client and activity charges. It’s very modern, very clean and focused absolutely on the basics of a platform with no funny business.

Again, it needs companies to understand that it won’t have teams of support administrators on hand, and it will ask firms to step in formally as the platform operator. In common with the other two providers, Seccl will also have a route to market for those who can’t quite bring themselves to that point; in this instance, through P1 Investment Management, which is a discretionary fund manager based in Bristol. 

Other providers that fancy really branching out can become, in effect, multi-tenant platforms in their own right over time with Seccl, in a similar way to what Embark has done with FNZ, or Fusion Wealth has done with SEI. 

None of these offerings are a cheap version of a retail platform; they all have more nuance than that. For firms that can afford some capital expenditure and which can create some infrastructure to support the additional responsibilities that come with being a platform operator, there are some really interesting options out there. One company we spoke to recently that is reviewing the market said “we just can’t see anything that excites us.” 

This alternative approach could just be a bit more exciting for those who have the stomach for it.

Mark Polson is principal of the Lang Cat