The trend of orphaned clients on platforms has continued to grow, increasing 23 per cent last year alone, research has suggested.
Research from consultancy Alpha FMC, published today (March 9), found a continued upward trend in orphaned clients on adviser platforms, numbers of which have risen by 185 per cent since 2017.
Orphan clients are former clients with assets held on platforms, but who no longer have a financial adviser.
The research, based on a survey of six small and large UK adviser platforms, representing more than £260bn of assets under administration, also found the proportion of assets owned by these type of clients had increased over the years.
Whereas in 2017 about 0.27 per cent of the total assets under administration on platforms belonged to orphan clients, last year that number stood at 1.7 per cent.
Alpha FMC said this represented billions of pounds worth of assets.
The FCA has already taken an interest in the topic after its Investment Platforms Market Study, published in 2019, found there were about 400,000 orphaned clients, holding more than £10bn of assets on platforms.
The FCA warned some platforms were imposing extra fees on orphan clients, of up to 0.5 per cent in addition to their pre-existing platform charges.
The regulator estimated around 10,000 orphan clients were paying extra fees at the time amounting to more than £1.2m every year.
But Alpha said these numbers have since grown.
Pricing can increase for clients once they become orphaned due to the removal of any negotiated adviser discounts, or the continued payment of adviser fees.
What's more, all of the platforms surveyed provided fewer services to orphaned clients than their advised counterparts.
In most cases, this included a limited investment range and the removal of some actions, such as changes to drawdown arrangements.
Identifying clients
To identify orphan clients, Alpha found only 20 per cent of platforms spoke with advisers to see if there was an ongoing service in place.
By not doing this, this creates a risk that adviser fees are still being deducted from orphan clients' accounts given the limited oversight the platform has of the adviser relationship, Alpha warned.
While the FCA places the ultimate responsibility on advisers to ensure that platforms are aware of clients becoming orphans, the expectation is that platforms should have the right monitoring and governance in place to deal with this group of investors, Alpha said.
And while most platforms said they had a communications strategy in place for orphan clients, they did not state the financial implications of retaining assets on the platform as a non-advised client.
Further, only a third of platforms followed up with clients if they did not respond to the initial communication once orphaned.
Bruce Davies, director and head of pensions and retail Investments at Alpha FMC, said more needed to be done to ensure clients are not negatively affected by being orphaned.
Davies said: “As the industry continues to evolve and adviser platforms start to deliver improved capabilities and experiences, the benefits will be felt by the end-customer. This not only helps the relationship between the platform and adviser, but also that between adviser and client.
“The research shows there is an opportunity for platforms to readily engage with advisers’ orphaned clients and ultimately, if required, be able to satisfy the regulator that they have been acting in the best interests of the client.
“To make real progress, platforms should consider increasing their use of data and analytics to better identify orphans and ensure full oversight of this group of investors. Platforms should also think about how to proactively engage with their adviser communities to reduce the risk that orphan clients go unnoticed.”
amy.austin@ft.com
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