It’s only summer (and a sizzling one at that!) but 2018 has already been an historic year for the UK adviser platform market.
With platform IPOs, re-platforming issues, rebrands and charges, the sector has rarely been out of the headlines. And let’s not forget the regulatory tidal wave in the form of MiFID II, GDPR and the recently released 110-page platform market interim report. Much like the UK weather, the platform market has been sizzling with activity.
The year 2018 in platform land will perhaps best be remembered as the year of the IPO. Transact got the ball rolling with parent company IntegraFin Holdings floating on the London Stock Exchange in March and admitted to the FTSE 250 in May. That was followed by Quilter, with its Wealth Platforms division, floating on the London Stock Exchange in June and Nucleus listing on the AIM market in July. AJ Bell is also looking to list.
The successful listings of Transact, Quilter and Nucleus, all of which saw their share price surge post-IPO, bode well for the likes of AJ Bell and underscores high investor demand for platform listings. It also provides a strong validation of the platform business model which has come to play a central role in the wealth management value chain. Listings will help platforms — which operate on thin margins and face increasing pricing pressures — achieve scale and raise brand awareness. And they could potentially elevate the sector to a new commercial level altogether.
The frenetic pace of change we have seen in the adviser platform space is symptomatic of a healthy and mature market with growing AUM. CoreData’s recently-released 2018 platform market report underscores the extent to which platforms have become ingrained into the daily life of financial advisers. The study, which surveyed nearly 1,000 UK financial advisers in June, found nearly seven in 10 (68.1%) HNW/UHNW focused advisers now use platforms on a daily basis, compared to 58.6% in 2017. And daily usage among advisers focused on mass market clients has increased from 42.9% last year to 49.2%.
These growing usage levels are bolstered by positive market fundamentals which point to further expansion. The CoreData study shows a higher proportion of advisers this year intend to both add more platforms to their offerings and increase business on existing platforms over the next 12 months.
But despite these sunny statistics, it hasn’t been rosy for all advisers. The year 2018 will also be remembered for the escalating problems associated with ongoing and painful re-platforming projects. While the hapless advisers at the centre of these glitches have suffered delays, errors and other mishaps, the platforms responsible have had to issue grovelling apologies, pay compensation and hire more staff to deal with the mounting problems. Outages, alongside difficulties switching funds, processing charges and retrieving client valuations are just some of the issues long-suffering advisers have had to contend with. The extent of the problem was underlined in July when the FCA, in conjunction with the PRA and Bank of England, released a discussion paper emphasizing the need for providers to have robust systems.
While technology upgrades may be the only solution for those players using outdated and inefficient systems, the re-platforming process is complex, costly and potentially disruptive. Companies looking to venture down the re-platforming route should endeavour to learn from the difficulties encountered by others and consider phased and managed migrations to minimise client disruption.
The re-platforming trend has also shone a spotlight on the high concentration of third-party technology providers. Aside from the detrimental impact on competition, an over-reliance on a small number of dominant providers could have far-reaching consequences if any were to encounter difficulties or even collapse. This is especially so in an age when the threat of cyberattack is ever-present.
Indeed, the ability to offer a safe and secure platform is of paramount importance to advisers. The CoreData study shows seven in 10 advisers increasingly consider whether a platform has adequate cybersecurity systems and controls in place when choosing a provider.
While platforms are an indispensable cog in adviser business models, the way advisers are using them is evolving. This year’s study sees full Sipps and/or other complex pension products replace annuities and income drawdown at the top of the platform product wish list — a position they had occupied since 2014. Despite rising customer complaints, Sipps appeal to those investors with an appetite for greater flexibility and control in the post-freedoms world.
The CoreData report also shows increasing adviser demand for ETFs. The growing popularity of ETFs, especially among advisers serving the mass affluent and mass market sectors, underscores strong investor appetite for these cost-effective vehicles as they become increasingly available in different variants.
Adviser platform satisfaction drivers are evolving too. The top three drivers in this year’s study are adviser remuneration features, reporting capability and retirement advice/services. The greater focus on adviser remuneration features and reporting capability this year reflect some of the challenges advisers face complying with MiFID II. Meanwhile product and investment range, service and functionality are much lower down the satisfaction pecking order this year, highlighting a shift in emphasis from what a platform offers in terms of products and tools to how it can actually help and support advisers. Those outfits that can best support advisers with the likes of MiFID II and GDPR will be best-placed going forward.
The composition of the market will undoubtedly change too going forward. Despite barriers to entry, the likes of Embark and Hubwise demonstrate there is room for new entrants. New players offering solid propositions and value for money will be able to gain scale. And with True Potential set to launch a platform using blockchain technology, there are potential rewards for those propositions leveraging innovative technologies to offer speedier, more efficient and more secure offerings.
Indeed, the future platform winners will likely be those than can harness technology to provide the best and cheapest solutions for clients. But the re-platforming issues experienced by some also serve as a cautionary tale about how technology can go wrong. Much like the British weather, the heat is now on for those players struggling with re-platforming woes to fix their issues sharpish.