In-house platforms cost clients the most

In-house platforms cost clients the most

Clients of advice firms who are running in-house bespoke platforms are paying the most for the privilege, research has shown, amid a rise in demand for this service. 

According to NextWealth’s Adviser Tech Stack report in-house bespoke platforms cost clients an average of 28 bps, compared with 23 bps for unbranded platforms not linked to individual firms. 

This comes as the number of financial advisers working in firms with a bespoke platform is set to double in the next three years, according to the report. 

Around a third (33 per cent) of advisers in firms with £1bn of assets or more claim they will create a bespoke platform within that time.

Heather Hopkins, managing director of NextWealth, said: “Our research highlights a strong appetite by adviser firms to launch their own platform although, in practice, few firms are able to offer the platform at a lower cost than average while also earning a profit for the firm.”

She said the key drivers for change included a desire to boost operational efficiencies, improve the client experience and exert more control over price and capture margin. 

“The reality is that even with firms that have the scale and appetite to launch their own platforms, too often it comes at a higher cost to clients.”

NextWealth’s Adviser Tech Stack report was first published in October 2019 and provides updates on the state of the nation of adviser technology, including platforms, back office systems and cashflow modelling amongst others.

The August 2021 report surveyed 908 financial advice professionals, and defined an unbranded platform as fully outsourced with no adviser firm branding and all regulatory permissions and development managed externally.

It found outsourced bespoke platforms and branded platforms were the next most costly option for clients at 24 bps on average. 

Kevin Okell, managing director at Altus, said there was a clear driver for advisers to create their own platform, but it doesn’t come without risks.

“The driver is commercial, the disincentive is the regulatory obligation,” he said.

“The truth is, it’s one thing to have the technology to do these things, it's another thing having the people and in some cases the capital, to take on the regulatory responsibilities.”

In July platform technology provider Seccl found 44 per cent of advisers were considering platform ownership.

Chief among the reasons why firms would consider this route were operational efficiency (35 per cent) and owning customer relationships more fully (34 per cent). 

The research highlighted advisers’ perceived lack of control over poor customer service that some platforms provide to their clients, as well as having little or no control over platform development.