Platform consolidation is set to increase costs rather than lower them as providers struggle to achieve decent margins, advisers warn.
A recent report from research firm CoreData highlights high levels of adviser concern around platform M&A, showing that nearly two thirds (62 per cent) of 1,000 advisers surveyed are worried about their main platform being impacted by consolidation.
CoreData found 53 per cent of advisers are worried about increased costs to their firm post-consolidation with a larger majority of the total (85 per cent) likely to switch platform providers if costs increased following a takeover.
The survey was carried out in June this year, a month after Standard Life bought rival Axa Elevate. Last week Aegon’s acquisition of Cofunds was announced after months of speculation.
Thameside Financial Planning director Tom Kean, who has used Axa Elevate in recent years, tells Fund Strategy platforms are struggling to make sufficient margins and surging M&As will cause costs to increase, instead of falling.
He says: “As much as we like wraps with all the efficiencies they bring to a small business, we’ve always been painfully aware of the extra cost which ultimately gets paid for by the client. We’d like to think these mergers will create cost efficiencies, but fear the opposite in fact.
“We’d be hugely disappointed if things became untenable in this sector, so anything they can do to make things work is clearly good news. There are few things a small IFA craves these days, but an efficient, cost effective wrap is probably still one of them.”
Yellowtail Financial Planning chief executive officer Dennis Hall says consolidation is not an issue if it leads to “better outcomes” and “a simpler landscape” and naturally bringing costs down.
However, he says: “We were early platform adopters, with almost 100 per cent of client assets on platforms, and cost, service, and efficiency are all drivers of our choice. We use Raymond James a B2B platform, but even at 15bps custody fee and £7 dealing charges, it’s beginning to look expensive.
“Those costs need to be reflected in reduced admin costs, and time costs compared to a paper-based system. If they don’t save admin and dealing time, what’s the point? It’s not just an asset gathering exercise from the provider’s perspective, they need to remember why advisers and clients use them. “
But Rowley Turton director Scott Gallacher says he won’t use a platform which sacrifices services and flexibility over costs.
He says: “We want great value for our clients. However we don’t want to see a race to ever-lower fees if it means a race to the bottom for service and flexibility at the same time.
“There are some big advantages to consolidation and the economies of scale it gives. We want platforms to be profitable with strength and depth. We want them to be well-resourced, robust, successful and strong so they’re here on a long-term basis just as we intend to be around on a long-term basis for our clients.”
Gallacher says even if resourceful platforms manage to keep standards high, technology and procedural changes, such as for Cofunds, still bring “inevitable disruption” and a big and costly burden can still fall on the adviser.
The survey found 83 per cent of advisers would transfer their clients’ assets if there was a fall in service levels after their platform merged with another.
The survey also highlights that half of advisers would stop registering new assets on their core platform if their main platform entered into a merger deal until due diligence was carried out on the new entity.
Hall says: “We took a long hard look at which platform(s) to use, and tried to think ahead, buying in scalability, and functionality that we didn’t necessarily need at outset, but having made one large platform change, we don’t want to make another in a hurry.”
Gallacher says his firm would be reluctant to move clients’ assets as a result of a merger unless urgent.
He says: “For us, it has historically been a gradual ebb and flow as some platforms and services become less attractive and others more. That process could possibly accelerate, but would probably always be gradual.
“Larger companies are usually more willing to sacrifice flexibility in favour of a more rigid model that maximises AUM. Smaller companies can gain loyalty by being flexible and adaptable to circumstances. It’d be a great shame to lose too much of that common-sense ‘human-centred’ approach.”
Published 17 August 2016
By Valentina Romeo