Platforms currently using FNZ include Quilter, Embark, James Hay, Abrdn, and Aviva.
More recently, national advice firm Fairstone confirmed it will be launching a new platform with FNZ in the final quarter of this year. This is the first time FNZ is working directly with an IFA on a platform deal.
Advisers have questioned why Fairstone decided on FNZ. Wingate Financial Planning’s director, Alistair Cunningham, tweeted earlier this week: “The most surprising thing about this is they [Fairstone] chose FNZ [rather] than any of the numerous competitors.”
Traditionally, FNZ, GBST and Bravura have been the main three technology providers for platforms.
But in recent years, other options have emerged. Advice firms can build their own platforms with disruptors such as Seccl, headed up by Nucleus founder David Ferguson, or Multrees - a firm which recently said it wants to expand beyond its family office model.
Fundment, launched in 2018, is a platform provider which has chosen to build its own technology, rather than outsource it.
Meanwhile, some firms have focused on the products on top of the platform, such as white-label Sipp provider Hubwise which was bought by SS&C at the end of last year.
Last month, Sanlam Wealth - soon to be known as ‘Atomos’ - told FTAdviser it was mulling a £7bn migration to one of these customised platforms, signalling the scope of change afoot in the market.
So, why did Fairstone choose FNZ? FTAdviser spoke to experts across the industry to find out. At least three said price formed a big part of the appeal.
If it heads towards a monopoly, the company will have pricing power and it’s likely it will use it.Anonymous“FNZ is simply giving them terms they can’t refuse,” said one person in the industry. “I’ve heard talk of deals as low as 5 bps, depending on assets.”
Another said they too had heard this number, while a third said: “FNZ is effectively trying to sew up the market by offering terms which cannot be matched by other platforms.”
However, it is important to remember 5 bps is excluding the usually substantial implementation and ongoing charge costs which sit on top of that.
Abrdn, for example, spent £88mn in the first half of this year on restructuring and corporate transaction expenses - much of which was made up of its FNZ platform transformation. Lloyds has budgeted £150mn all-in for its remaining FNZ migrations, and Quilter spent £220mn on its FNZ revamp.
But compared with the market, 5 bps is the cheapest - at least half of the price of the next cheapest competitor. Fundment charges 25 bps, Multrees charges 15 bps, and Seccl charges 10 bps. All the while, the average client pays 34 bps, according to analysis of Lang Cat data.
“You have to ask here - what’s the endgame? The platform marketplace is beginning to become dominated by FNZ. If it heads towards a monopoly, the company will have pricing power and it’s likely it will use it,” said one member of the industry.
“These deals might be loss-making in the short-term, but in the long-term this will have to change.”
A PE-fuelled FNZ ecosystem
In February, FNZ bagged a $1.4bn (£1.2bn) investment from asset manager CPP Investments and private equity firm Motive Partners, valuing the company at over $20bn (£17bn).
It has tried to use some of its investment over the years to buy up the competition.
FNZ bought GBST in a deal worth £220mn in the summer of 2019, but the competition watchdog blocked the merger a year later. It concluded the move would see customers using investment platforms face “higher costs and lower quality services”.
On its own, FNZ already administers over $1.5trn (£1.3mn) in assets, supports more than 8,000 wealth management firms and around 20mn of their investing clients.
One thing the company does like to do is buy stakes in some of its clients.
It has a 9.1 per cent stake in Embark, now owned by Lloyds. It has also co-invested in Embark's FNZ migration project, helping the company to keep the implementation costs on its books down.
FTAdviser understands a big part of initial discussions with James Hay were about FNZ acquiring a stake in the business alongside with Epiris - the private equity investor which bought James Hay but later sold some of its stake to HPS Investment Partners.
“Having a stake enables FNZ to offer that cheaper bps deal,” said another source. “They know they will get a private equity exit amount from the profit generated from a lower bps margin. They can keep variable costs low in exchange for equity.”
Firms ‘become FNZ shopfronts’
A big draw to FNZ for providers and advice firms alike is the fact they can outsource more to the company than they can with its core competitors, GBST and Bravura.
This allows advice firms in particular to focus on running their advice operations, making owning a platform less disruptive to their business models.
But it also poses the question - if FNZ is powering everything, what’s the point in the platform?
A source said: “What FNZ is doing is essentially providing the technology, administration and regulatory reporting, shifting customer service which traditional platforms provided back to the adviser. And it’s cutting out the traditional platforms in the process.”
Another added: “The issue is - the adviser or platform becomes a shop window for FNZ. Platforms simply become distribution, not doing much else.”
It would make little sense for FNZ to sign lots of deals directly with advice firms if that means causing its existing clients huge outflows.
FNZ’s UK chief executive, Adrian Durham, addressed these fears in a LinkedIn comment earlier this week.
Despite signing the Fairstone deal, he said: "FNZ has no intention of directly dealing with advice firms.
"However, FNZ platform partners e.g. Abrdn, Quilter, Aviva, Embark, James Hay etc. I would say [will] certainly start offering fully customised white-label solutions to advice firms. That strengthens their offering to and relationship with advice firms.”
FNZ was approached for comment.
ruby.hinchliffe@ft.com
