Some advisers are shunning larger advised platforms in favour of smaller ones for better service and better tech, according to the Lang Cat senior analyst, Rich Mayor.
The Lang Cat's latest State of the Platform Nation report, found the six largest advised platforms secured 60 per cent of new business over 2022 and 2023.
This meant the six platforms with the most assets under management, Quilter, Abrdn, Transact, AJ Bell, Fidelity, and Aviva, commanded the majority of gross flows over the two years to the end of 2023.
With this increased share of new business, the Lang Cat warned the gap between the largest platforms and their smaller rivals is growing.
This could make it harder for other platforms to catch up in terms of AuM through organic growth.
However, Mayor added: “We absolutely do see some advisers going to smaller platforms."
This includes Fundment or Morningstar Wealth Platform, for reasons such as better service or better available technology.
He told FT Adviser the numbers suggest the volume of this activity is not yet disrupting the status quo and instead, the lion’s share of new business steadily flows to the largest platforms.
Mayor added that the data shows in the world of advised platforms, scale correlates to the lion’s share of new business flows and the gap between the biggest platform club and the rest of the pack is growing.
“Plenty of smaller platforms are successful and make a good profit, but for those wanting to build scale, it is hard to see how that can be achieved organically when the largest platforms continue to pull in most of the new business," he added.
We think more platforms will pivot to other revenue making avenuesOutflows
The report also highlighted, while gross flows into Isas, pensions and bonds saw moderate increases year-on-year, they also experienced a hike in outflows.
It detailed how Isas saw the largest increase in withdrawals in 2023, up 43 per cent on 2022, which pushed net sales for the year down to -£3.49bn, ]from £1.51bn in 2022.
A similar rise in outflows was experienced by pensions which took the net-to-gross ratio to 30.3, a decrease compared to the 48.6 figure from 2022.
This represented the lowest net-to-gross ratio for pension sales since the lang cat began tracking the data in 2016.
“In terms of individual products on platforms, we’ve said before that 2023 was a record year for outflows,” Mayor added.
“While withdrawals from ISAs pushed net sales for the year into negative territory to the tune of an eye-watering £3.49bn, they have always been the most liquid product in platform land and the most logical option for investors to access to cover increased costs.
“More concerning is the hike in outflows from pensions, which increased by 40 per cent year-on-year.”
He explained pensions flows onto platforms have been "absolutely essential" to historical platform growth due to the historically high net-to-growth ratio, and so for that ratio to fall to the low thirties is “not inconsequential”.
The future
Looking ahead, Mayor stated that he expected to see “elevated outflows” across product wrappers to continue in 2024, which he believes will present revenue challenges for platforms.
“Alongside lower net sales, increased scrutiny of cash is also likely to impact revenue for a fair few platforms, and the trend for platform charges is only going down,” he added.
“As a result we think more platforms will pivot to other revenue making avenues, with a few more exploring vertical integration to some level.”
tom.dunstan@ft.com
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