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Market correction ‘will hit platform revenues’ this year

Market correction ‘will hit platform revenues’ this year
AP Photo/Lee Jin-man

The current decline in global markets is set to hit platform revenues this year following the “artificial numbers” and “perfectly priced” company shares of last year, according to experts.

Consultancies Altus and the Lang Cat, as well as commentators at Share Capital, said it was important to understand the impact of market conditions on adviser platforms, as share prices in advised and direct-to-consumer platforms have dipped considerably over the past six months. 

IntegraFin, Transact’s parent company, is down 60 per cent, AJ Bell and Abrdn are both down 30 per cent, and Hargreaves Lansdown is down more than 40 per cent.

Assets have also taken a hit this year. In the first three months, a declining market shaved off £15.6bn from advised platform’s coffers.

In April, Transact went as far as to warn of a revenue hit caused by the £1bn dip in assets it experienced during this period.

But experts have said it will not be the only platform whose revenue falls victim to such market conditions.

“The FTSE 250 has fallen 17.5 per cent. Markets globally are going through a correction as inflation, interest rate rises, the war in Ukraine and the aftermath of the pandemic hits investor confidence,” innovation head at consultancy Altus, Jonathan Warren, told FTAdviser.

“Platforms, like technology stocks, benefited from a boom in investor numbers and trading activity in the pandemic. As we emerge, results and numbers look low compared to the artificial numbers recorded the year before.

“Under a basis-point model on assets, the global decline in markets will hit platform revenues in 2022.”

Warren added, however, that advisers should not worry about the dips their platforms are currently experiencing. 

“Should advisers be concerned? No. It looks like market conditions, combined with a general view of the platform market due to revision in investor behaviour and margin pressure.”

Zero interest rates are no more

A number of advised platforms in the UK are private equity owned, meaning they are vulnerable to what is now a rising interest rate environment.

This is because private equity firms usually buy assets using debt. The era of low interest rates made it extremely cheap to do this, but as that comes to an end, so their repayment costs will rise, just as revenues may be declining as a result of falling stock markets.

The latter is because most platform charges are calculated as a percentage of the assets a client has on a platform. Stock market declines push down the value of a clients assets, and so reduces the revenue a platform can make per client. 

Private equity backed platforms include Nucleus, Novia, True Potential and Parmenion.

But public equity funded firms such as Transact, which may not have the same debt levels, could also be vulnerable in this environment. Because if savings interest rates go up, shares are a less attractive investment. And if mortgage rates rise, people have less money to invest on platforms.