Long ReadAug 1 2022

A new approach to platforms

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A new approach to platforms
(Christina Morillo/Pexels)

Recent years have seen the convergence of advice in the UK wealth management sector, as stockbrokers and wealth managers continue to add financial planning capability. 

At the same time, traditional financial advisory firms have added investment management capability to their client propositions.

All this is well and good, but how are service providers to the sector reacting to this change in the landscape?

One interesting development is the arrival into the UK wealth sector of the type of service provision that just 15 years ago was only in the domain of institutional asset managers looking for solutions to help them scale their global businesses.

These huge global firms created a demand for middle and back office operational outsourcing solutions, initially filled by the major global custody banks.

Then as operational outsourcing matured, specialist firms became competitors in this space. Some of these specialist providers of operational outsourcing services matured their services to the extent that they were able to be deployed within the private client investment management sector.

The specialist outsourcing services have allowed private client investment managers to scale their businesses while also enabling them to focus on client service, and maybe more importantly, being seen as the sole trusted wealth brand to those customers.

Contrast this to the traditional approach taken by adviser firms, where the old-fashioned ‘adviser as broker’ model led to customers having multiple relationships with multiple brands, across investments, tax wrappers, and retail investment platforms, diluting the brand of the adviser.

The UK adviser market is going through a major transition with the entry of more and more consolidators into the market buying up the small regional players. Every independent financial adviser firm of size will have been contacted by a number of these consolidators, probably getting approached on a weekly basis, with offers to buy them out.

Consistent and professional service

However you look at it, scale is the future for adviser firms. But scale is not the optimal answer on its own. The other objectives of enormous significance are to drive operational efficiencies into the business and to provide a consistent and professional service to their clients. 

In recent years the obvious solution for smaller adviser firms looking for an efficiency in operations was to go to a ‘platform’, which would claim to bring in those efficiencies, and indeed it has to be observed that platforms have taken over much of the retail investment market in recent years.

The problem with this solution is that you take what the platform offers, not what your business wants and needs, and you have to shape your business around their solution, not them meeting your requirements.

The other problem is that adviser firms would often adopt more than one platform as they believe that is what the Financial Conduct Authority demands, but the obvious flaw, despite the fact that the FCA has never made that demand, is that this doubles up and complicates their own business effectiveness and puts on a lot of cost to the adviser business.

The national IFAs and wealth managers have already recognised this flaw in adopting external platforms and some are already taking the first step of building their own platform using one of the new generation of platform providers. But this approach brings significant additional costs and risks because the adviser is buying technology, and there is much more to be spent on delivering a professional service.

Back to basics

A better and more effective solution for advisers and wealth managers is to start from the basics by designing their own business model and then approaching a supplier who can offer the middle and back office capabilities required to achieve the model.

It also means that you only pay for what you want, not for all the services and features a retail platform may offer, and costs of which they need to recoup, but you will never use. That model is becoming a barrier to scalability.

A simple example of the sort of things that can be achieved in the outsourced solution is in the area of white-labelled (client own brand) client reporting. To do this, the outsourcing firm would start by working with the adviser firm to design the suite of reports they want to use in their business and then deliver to that specification. This feeds directly in to the offer the adviser firm is taking to the market, and is essential to differentiating the firm in the eyes of their customers.

In summary, ambitious growth oriented firms committed to providing a professional and consistent service to their clients will gain more from these types of solutions, which can be configured to support their own business models and unique selling points, than the traditional platform. As adviser firms consolidate and become scale players, the days of the ‘you take what we offer’ platform are rapidly coming to an end and the adoption of solutions that are already widely used in the institutional market is the way forward.

Chris Fisher is chief executive of Multrees