Morningstar has labelled Praemium, the adviser platform it is in the process of acquiring for £35mn, a “challenger” in the UK platform market with a “strong growth trajectory”.
Morningstar's president of wealth management solutions, Daniel Needham, has been tasked with setting the strategy for the platform, which is being offloaded by its current owner due to its small scale putting it at a disadvantage to competitors.
Despite its small size, Needham said the UK business “has been growing quite nicely”.
“They've been dominating. If you look at the platform marketplace by incremental flows as a percentage of their assets, they're one of the challenger platforms,” he told FTAdviser.
“They've been growing at a very healthy rate, signing up advisers and increasing assets on the platform. So, we think they've got a relatively strong growth trajectory, and we're investing in that.”
As of March 31, 2022, Praemium held £3.28bn of assets under administration in the UK, making it one of the country’s smallest advised platforms, according to the Lang Cat’s latest platform report.
But compared with 15 other advised platforms in the UK, Praemium experienced one of the smallest dips in advised assets across Q1 2022, second only to 7IM.
It also experienced the largest year-on-year growth of assets of any other advised platform between 2021 and 2022, up 35.52 per cent over the past year.
Such growth put it 16.6 percentage points ahead of the next fastest growing platform, 7IM.
Rival platform bosses such as Nucleus’ Richard Rowney have pointed to Praemium as an example of why scale is now essential to be successful in the UK platform market.
But Needham reckons scale should come second to technology.
“Praemium’s technology, we think, is really compelling and differentiated in the marketplace,” he told FTAdviser.
“Technology is really a tool to deliver great outcomes for the adviser and their clients, [...] so that's what we're focused on.”
The platform is built on application programme interface technology, which Needham said makes it a lot more friendly to integrate with advisers’ existing software stacks compared to some of its peers.
“The scale will follow. At the end of the day, advisers vote with their feet and if you're delivering a compelling proposition through technology that helps them do their job better, and great service, that will make you successful.”
Praemium is not the only platform to take a ‘tech first, scale second’ approach. Novia’s chief commercial officer, Barry Neilson, told FTAdviser in April it was banking on a microservices strategy to ensure it does not have to employ more administrators in order to scale.
Fellow platforms such as Parmenion and Aegon have also said they are working through backlogs of issues and requests raised by advisers in an effort to roll out more features and, specifically in Aegon’s case, to revamp their platform’s front-end.
‘Not as simple as having platform in US’
Advisers around the world are facing similar challenges, according to Needham, which fall into the broad categories of trying to grow their business organically, and trying to run an efficient business with flexible technology.
“The advice space is an attractive market. We’ve operated in it for decades,” said Needham. Morningstar owns an advised platform and a discretionary fund management service in the US which are around 20-years old.
“There are, of course, different structures in the UK. It’s not quite as simple as having a platform in the US and the UK,” said Needham.
“We’ve invested in Praemium to create more runway in a new market. It’s built specifically to serve UK advisers in the UK. Though we will look to bring in some capabilities from the US.”
Advisers focused on a centralised investment proposition are the advisers Morningstar will be going after in the UK, big or small.
“We still have work to do as a group before the deal is completed. We want to make sure the proposition is comprehensive.”
With “a number” of regulatory approvals already completed, Needham anticipates the deal is likely to close at the start of the third quarter this year.
‘We’re long-term investors’
Morningstar is acquiring Praemium’s UK business and its capabilities. “We’re certainly not buying it to operate as a separate subsidiary,” said Needham, who also confirmed the new owner has no intention of replatforming clients.
Asked how Morningstar has swallowed the losses suffered by the vast majority of advised platforms over the past two quarters, Needham said: “We’re long-term investors and we run the business from a long-term perspective.
“It’s about years and decades versus quarters…Advised assets in the UK will continue to grow.
“It’s a great opportunity to work with advisers during volatility. That’s just the contrarian in us - we like environments like this.”
It was clear how aligned Praemium and Morningstar’s cultures were upon entering into deal discussions, according to Needham.
“Mark Sanderson, Praemium’s managing director, is all about delivering for the adviser over the long-term within a permanent home. Having a stable owner and an infinite holding business is important,” he explained.
“As the number of clients needing advice grows and household wealth grows, the need for advice will grow. Advisers and IFAs have historically grown through referrals. That’s going to be even more important, particularly with the rise of social media.”
ruby.hinchliffe@ft.com
