PlatformsFeb 9 2023

Adviser-as-platform has ‘potential for bad customer outcomes’

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Adviser-as-platform has ‘potential for bad customer outcomes’
[L to R] Fairstone managing director of partnerships, Anna Pollins, Unique Financial Planning managing director, Philip Martin, and Lang Cat director, Tom Ellis

The adviser-as-platform model has the "potential for really bad customer outcomes" if firms "rush onto the bandwagon," according to one advice firm.

Speaking at the Lang Cat Home Truths event in London today (February 9), Unique Financial Planning boss Philip Martin said the business case for the majority of advisers to operate their own platform is "absolutely bonkers".

While he accepted the likes of Fairstone, a national IFA which recently embarked on a platform build with FNZ, suit the model, for the vast majority of the advice industry it should be a no-go.

Advisers have historically berated life companies, but there's potential they too could deliver poor service through this model.Philip Martin, Unique Financial Planning

Martin, who co-founded Nucleus, said that in principle advisers owning their own platforms could offer continuity to clients, but that the many downsides - predominantly the risk and cost involved - are too big to ignore.

"For small and mid-size businesses, adviser as manufacturer is absolutely bonkers," said Martin.

"For the risk you take on, you have to be a scaled business both in assets and advisers.

"There's all this focus on margin grab and saving an extra 10 basis points, but firms should be asking themselves whether they are really resourced to do it properly."

There are many variations of the customised platform model. For example, as part of Fairstone's deal, the firm will outsource platform custody to FNZ.

But Martin argued that even if advice firms do outsource custody and are covered by third-party service level agreements, they are still responsible for monitoring third parties.

He also pointed out that the regulatory permissions still rest with the advice firm, and that it is ultimately their balance sheet on the line - not the technology firm's.

"The worry is we end up with people not big enough to do it properly," said Martin, who is concerned about those adviser-as-platform providers targeting smaller firms with less resources.

"I don’t think the risk of taking on [platform] manufacturing is worth a handful of basis points," said Martin.

"You will be on the hook if something goes wrong. You need an in-house team to monitor this and have to hope the custodian will do a good job.

"There's a potential for really bad customer outcomes as people rush onto that bandwagon. Advisers have historically berated life companies, but there's potential they too could deliver poor service through this model."

Martin's argument was that there’s many other ways small and mid-size advice firms can deploy capital more effectively, even if it's as simple as expanding their capacity of advisers.

The Fairstone example

Managing director of partnerships at Fairstone, Anna Pollins, was also at the Lang Cat event today debating the adviser-as-platform model and said there is a case for advisers to consider this.