Our word of the month this month is ‘convergence’. It’s a good word, mainly because no one is really quite sure what it means, and so we can set it to work in the way that suits us best.
And in the world of financial technology for advisers, what suits us best is to talk about the way the various different bits of tech advisers use are converging at a rate of knots, whether or not you want them to.
Exhibit A – and one which doesn’t get written about enough – is adviser back-office and customer relationship management (CRM) technologies. These systems are the very essence of plumbing – pipes to carry data (don’t worry, not going to push the metaphor too far) around the place with as few people noticing as possible. It’s not a glamorous corner of the world, and it’s one which advisers tolerate rather than love, in most cases.
But a bit of glamour did hove into view recently with the acquisition of Intelliflo by US fund giant Invesco. That is to say, Invesco looks after lots and lots of money. The physical stature of its fund managers cleaves, one suspects, to the mean.
Now we don’t know for sure what the purchase price was, but one or two outlets have been confident enough to print that it’s £200m, and that’ll do for me.
If that figure is right, it is more than Aegon paid for Cofunds (£140m or so) and more than Standard Life paid for Axa Wealth’s Elevate platform (believed to be £40m or less). To put it another way, a firm that does grunty admin for slightly less than a third of UK adviser firms is worth more than something in the region of £100bn of client assets.
So how can this be? It’s surely not because advisers love paying technology firms’ fees (advisers hate paying any fees in my experience). But it might be because of convergence.
Let’s take a step back in time for a moment and think about how it all plays out.
The context
A decade or so ago we used to talk about the ‘battle for the adviser desktop’. I’ve written about it before in these hallowed pages: the short version is that platforms reckoned they could do so much for advisers that back-office systems would become redundant.
Back-office systems reckoned that this was total mince, and that platforms were getting ideas above their station and needed a good slap.
Fast forward to 2018, and it seems the back-office systems were right.
So what’s this got to do with convergence? Well, once you’re in the driving seat in terms of the everyday life of the adviser – which I think we know Intelliflo, Iress and their competitors are – you can start coming out of the back office and into the front.
All adviser CRM firms are interested in providing toolsets, client portals, enhanced reporting, regulation assistance (‘regtech’, if it please the court) and so on. Few examples exist so far of back offices really taking platforms on at their own game, but there really isn’t that much stopping them anymore.
And that’s why I think the acquisition of Intelliflo by a mahoosive fund management house is particularly interesting. You don’t have to be Nostradamus to see that Invesco may just be interested in what happens if back-office systems do manage to disintermediate platforms.
Invesco’s aims
I don’t think for a second that we’ll suddenly see Invesco funds available for direct purchase via Intelliflo.
For a start, advisers are instinctively wary of tied cottages and vertical integration, and more than a few firms have been in touch with us to express concerns that a fund manager will be able to see what they’re doing with other fund managers – if you reject platforms on the basis of ownership by connected parties, then why not back-office tech?
For what it’s worth, I don’t think that’s a huge issue. Invesco looks after roughly $1trn (£750bn) of assets, and just bought Guggenheim Investments’ $38bn ETF book, so it probably doesn’t care how much of your client’s self-invested personal pension is in Schroders’ funds.
But what might be happening here is that Invesco is looking at how the future of investment buying on behalf of clients might play out. If platforms really just do four things – buying stuff, holding it, telling you about it, and selling it when you’re bored of it – then it follows that each of those disciplines could be replicated somewhere else.
It’s in the nature of technology and market disruption that the most established patterns of usage are the ones that get hit the hardest, and with more than £500bn on UK adviser platforms right now there is plenty to go at.
How far are we away from a CRM/back-office system offering a custody, dealing and administration arrangement that removes the need for a ‘platform’? I’m not saying any of it is easy: I lived through some pretty difficult platform years myself in previous jobs.
But what’s to stop Invesco buying a platform (or the bones of one) and stitching the whole thing together?
We’ve already seen Benchmark Capital (parent of the Best Practice network, the Fusion platform and the Enable back-office system) do just that, and win a big investment from Schroders in the process.
There are regulatory smoke signals here, too. From time to time various talking heads from Canary Wharf have wondered aloud what purpose a platform serves if, for example, your client is just holding a multi-asset fund. Isn’t that 0.35 per cent a bit of a waste? Wouldn’t it be great if you could fire trades from your back-office system straight to a custody arrangement that holds your MyFolio or LifeStrategy fund? For a minimal cost?
Prod in the right direction
Playing still more with this concept, if we think about the new Prod (Product Intervention and Product Governance Sourcebook, available on the FCA website) rules – you should check out section 3.3 particularly – then we find that advisers have a whole new set of responsibilities in terms of defining the target market for products and services and ensuring suitability by that market segment. Which is to say, it’s increasingly hard to say that platform XYZ can be suitable for both your clients with straightforward needs and those with more complex needs.
As an aside, Prod is a big deal, and not enough advisers are paying attention to it yet.
A lot of things that have previously just been guidance or guidelines are now rules, and that means if you don’t get them baked into your own processes you may end up on the wrong side of the compliance Feds, and none of us needs that in our lives.
So put constantly increasing capabilities from the bigger back-office guys next to rapidly changing regulation, and the opening out of custody and trading solutions in terms of their ability to integrate with other systems, and what you might get is the start of something quite interesting. I have a feeling that it’s this sort of market shift Invesco quite likes the sound of being exposed to. Either that, or it’s really into Gabriel returns.
Life companies had it their own way for more than 100 years. Platforms came along and changed all that in less than two decades.
What if we’re seeing here the first really big moves in what might disrupt platforms in the next five or 10 years?
Whatever the future looks like, it won’t look like it does today, and that’s hugely exciting for both advisers and their clients.
Mark Polson is principal of platform and specialist consultancy the Lang Cat
