PlatformOct 12 2016

Consider investing in the outsourcing boom

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Consider investing in the outsourcing boom

There are three major fault lines that platforms must cross in order to be successful: the regulatory burden, the commitment of the parent company, and investment in technology.

That criteria was identified by research firm Platforum back in January, and recent analysis looked at the investment platforms are making in technology. The sector is in the middle of a major migration from proprietary technology to outsourced technology. Whatever route a platform takes, researchers at Platforum see a commitment to investing in technology as critical, regardless of whether to outsource or remain on proprietary technology.

In our conversations with advisers, frustrations with ageing platform technology are a recurring theme.

Re-keying is a major bugbear of advisers looking to streamline processes to free up more time with clients. Typical comments include: “One of the biggest challenges is the continuous repetition of the input of data. The time is so right for people to bring them into the 21st century, but providers are sitting on their hands,” and, “I dislike rekeying client details when they require a joint policy if they already have single accounts.”

PlatformAUA at 30/06/2016
Cofunds£77.5bn
FundsNetwork£64.3bn
Old Mutual Wealth£37.7bn
Standard Life£28.8bn
Transact£22.3bn
AJ Bell Investcentre£21.3bn
James Hay£20.3bn
Zurich£18.7bn
Axa Wealth Elevate£11.2bn
Ascentric£10.8bn

Advisers are also increasingly annoyed by the fact that some platforms still require a lot of paperwork. One adviser said: “I dislike the fact that Platform X doesn't require any paperwork for adding clients to the platform, but if there is a need to make any changes, for example, increase costs or take a withdrawal, paperwork and wet signatures are required.”

It may not be possible to do away with wet signatures entirely, but doing away with unnecessary paper-based processes is at the top of many advisers’ wish lists.

Advisers we speak to also find it baffling that many platforms can not facilitate functionality they feel should be a basic requirement. One said: “It shocks me that reputable platforms don’t have some of the seemingly obvious functionality. There is no automation – is it a lack of understanding or a lack of interest in user input?”

As a consequence of adviser frustrations, many of the platforms we analysed are making substantial investments in revamping their technology. Upgrading their technology is critical to platforms remaining competitive either through an outsourced technology provider or by continuous updates to in-house technology. 

Many platforms have opted to go down the outsourcing route and are in the middle of what the industry generally terms ‘re-platforming’, which means migrating assets onto a new, outsourced backbone technology.

There are currently £128.18bn assets in motion as adviser platforms make the move from proprietary technology to outsourced technology providers:

    Ascentric and FundsNetwork are moving to Bravura Sonata

    Alliance Trust Savings is moving to GBST Composer

    Aviva is moving to FNZ

    Old Mutual Wealth is moving to IFDS

Cofunds retail and institutional assets are also likely to be moving across to GBST as part of the integration following Aegon’s acquisition, which is expected to receive regulatory approval by January 2017. 

Platforms that have decided to outsource will have weighed up three main considerations; in the words of David Moffat, group executive of IFDS: “Can the outsourcing provider do it quicker, better, cheaper?”

The economics of outsourcing is a powerful influencer in any decision to make the move to outsource. For example, outsourcing the backbone technology to a third-party technology provider allows platforms to share the costs of technology updates across multiple users. 

To effectively upgrade technology, platforms do not necessarily have to go down the route of outsourcing. Transact and Parmenion consistently receive the highest scores in our adviser surveys and both are committed to using proprietary technology to power their platforms.

Transact makes new releases of its technology every month and advisers consistently rate the platform highly for web usability, quality of reports and usefulness of online tools in quarterly surveys.

Parmenion also runs on proprietary technology and is highly regarded by the advisers who use it. Aberdeen Asset Management saw the opportunity that Parmenion’s technology presented and the platform now forms a core part of Aberdeen’s digital arm.

This technological flair is not easy to replicate successfully. It takes commitment to run proprietary technology effectively.

The technology upgrade projects taking place will bring important updates to many advisory firms. For example, Old Mutual Wealth and Cofunds should finally be able to cater for ETFs and investment trusts.

Advisers can still expect a reasonable level of variation between platforms. This can be due to philosophical reasons – some platforms prefer not to offer tools they feel are better catered for by third party providers such as Voyant. Some platforms are committed to simplicity, others see adding on bells and whistles as a USP.

But the number of platforms currently going through the pain of re-platforming shows there is widespread recognition that technology fit for purpose is critical to the future health of platforms. 

The re-platforming projects currently underway are seen as once-or-twice-in-a-generation moves by technology experts.

Clearing the re-platforming hurdle, however, should free platforms up to fine tune their technology. IT experts talk about ‘configurable systems’, which means platforms are free to make updates or launch additional features independently of the technology provider.

Nucleus has weathered the re-platforming process. It was the first to complete its re-platforming project to Bravura Sonata in 2014. The platform is now pushing ahead with a further programme of investment in its technology.

Nucleus is able to make small, incremental releases each month, which minimises the level of change advisers experience while also making sure continuous improvements are made to the platform.

Ultimately, most platforms want to improve efficiency and automation for advisers, freeing time for advisers and paraplanners to focus attention on more complex tasks. The level of investment currently being made in technology by many platforms shows the ambition and commitment is there.

We would urge platforms to keep communications channels open with advisers. Looking under the bonnet of platforms to understand the intricacies of the systems powering the platform is unlikely to be top of most advisers to-do lists.

But advisers are concerned about functionality that can enhance the service they provide to clients, whether that is real-time equity dealing or the opportunity for clients to review reports remotely on their tablets. It is not enough to make the improvements to technology. It will be up to platforms to educate advisers on how they can make the most of improvements to platform technology to benefit their businesses and their clients.

Miranda Seath is senior researcher of Platforum

Key points

The sector is in the middle of a major migration from proprietary technology to outsourced technology.

The economics of outsourcing is a powerful influencer in any decision to make the move to outsource.

Most platforms want to improve efficiency and automation for advisers.