Appetite amongst advisers when it comes to operating their own platforms has begun to “dry up”, according to NextWealth’s CEO.
Heather Hopkins told FTAdviser white label platforms - defined as those under an adviser’s and not a platform provider’s control - initially “sounded appealing” to IFA firms, offering a greater ability for firms to customise their service.
But now some have found themselves in the “nitty gritty” of how a platform under their operation would work, the white label proposition “doesn’t sound so good”, said Hopkins.
In February NextWealth's own research, which found nearly half (47 per cent) of financial advisers in businesses with £250m or more in assets under advice said they planned to launch a platform in the next three years. Some 8 per cent said they were already underway on the process.
Consultancy The Lang Cat also found 44 per cent of firms had considered the prospect of running their own platform.
But now NextWealth’s CEO said anecdotal conversations over recent months were pointing to a sea change among advisers.
“People are looking at it, getting further down the road, and questioning operational costs and benefits for the business,” said Hopkins.
To operate their own platform, advisers must take on a new set of regulatory responsibilities - regardless of whether they’re an appointed representative or a direct operator with their own permissions.
This is unlike a ‘reskinning’, sometimes referred to as a form of white-labeling, which sees advisers use a platform like Aviva’s with the addition of their own brand on the dashboard - all the while Aviva oversees it.
People are looking at it, getting further down the road, and questioning operational costs and benefits for the business.Hopkins“There’s issues around client money rules,” Hopkins explained. “As well as the amount of work you have to do.”
It’s also “hard to do for the same fee” as established providers, the CEO continued. NextWealth’s data suggested the average cost of an adviser-operated platform was 4 basis points higher than a third party’s.
“Platforms don’t make much money or charge much,” said Hopkins. “If advisers can’t bring down the cost of investments made by clients [via the platform], then portfolio management or fund management fees are where they’ll look instead, because there’s more fat to be cut.”
Selling up
But advice firms aren’t just looking at costs and returns on investment in the now. They’re also looking into the future, which, for many of them, likely holds a plan to eventually sell up.
“For those looking to sell their adviser business, having your own platform can distract from the sale,” Hopkins explained. She went as far as to argue it can “reduce the multiple paid” by the buyer.
“An acquirer would already have their own platform, and would look at stripping costs. This platform [built by the adviser] then becomes dead weight.”
And if the advice firm did manage to bring down the cost with their own, bespoke platform with partners such as FNZ or Seccl, Hopkins said an acquirer will be thinking: “How are we going to justify a change if it has to go back up?”
ruby.hinchliffe@ft.com
