The UK advice industry has seen the use of technology increase rapidly. In a blink of an eye, advisers have had to adapt to the ‘new normal’.
As more fintech firms enter the space, advice businesses can look to exploit the technology at their disposal and move away from outsourcing investments.
Recently, software company Seccl and the Lang Cat surveyed 181 advisers and found 44% are considering investment platform ownership.
International Adviser spoke to different players in the advice sector to discuss if this is possible for many firms and what this means for the platform market.
The big players in the advice market, like Quilter, can afford to run their own investment platform but this may not be the same for every business.
Chris Page, Lewis Brownlee Financial Services director, said: “I think at the moment it will only be the larger firms which will operate their own platforms but as time goes on, with technological advances and improved regulatory guidance, it may be that it will become more accessible for those operating medium and eventually smaller firms.”
Sarah Lord, president of the PFS, said: “While the technology is evolving at a pace and we are seeing new entrants that enable firms to far more easily build their own technology stack and platform capabilities, I personally think that there is still some way to go for it to be a feasible option for many advice firms for the prime reason of affordability.
“Affordability of time, to have the time to be able to build their own platform capability using third parties, and affordability of cost, it is likely to require not only investment in technology and solutions such as the platform but also the investment in human capital to oversee and run the platform capability.”
Long term view
Trying to run your own investment platform is not easy. It takes a lot of time, money and patience. Platform owners have to deal with regulators, fund providers and fintech companies.
Page said: “There are many considerations when considering becoming a platform service provider, such as; will you need to apply for Financial Conduct Authority (FCA) permissions or become and appointed representative? Do you have the in-house expertise to carry out the research and due diligence?
“Most importantly, why are you looking to operate your own platform – is it going to be for a specific client type? What’s the purpose? After all, any recommendation to the new offering needs to be in the client’s best interests.”
Lord added: “Having in the past worked in businesses that do operate their own platform, my word of caution is that it is not for the feint hearted, there is a tremendous amount to consider before setting out on this road. First and foremost is considering what impact and benefit it will bring to not only the business but importantly the client journey and client experience.
“It is worth bearing in mind that this can be a double-edged sword, when it works well and there are no ‘hiccups’ with the technology or the platform capability then it can undoubtedly provide a strong brand and client experience for the client. Conversely, when the tech fails, which let’s be honest happens from time to time, it can have a negative impact on the client experience and the brand. So first and foremost, it is important to be clear on the value it brings to both the business and importantly the client.
“Importantly when selecting the platform provider it is imperative that there is alignment on the development roadmap – without clear alignment it is inevitable that over time frustrations will creep in and ultimately the client experience can be impacted so when selecting the provider at outset it is really important that the firm has a really clear vision of what the client journey should look like and what the platform capability needs to be to support this client journey.”
Dan Marsh, head of customer at Seccl, also spoke about the costs of running a platform and said that they “will naturally depend on the set-up that each firm chooses to pursue”.
“Under our model, they can typically expect to pay for the provision of custody and the administration of client money, charged as a percentage of each client’s portfolio, as well as for any client and adviser portals, charged on a per user basis,” he added. “In addition, there’ll be some variable transactional and administrative costs involved that will usually be passed on more or less at cost – for example direct debit charges, product and wrapper fees, transfer fees, trading costs and instrument charges.”
So, where have these attitudes to platform ownership come from?
The Seccl and Lang Cat survey also found that 62% of advice firms feel they have little to no control over the direction of their platform’s development, while over 40% say they often have to change the way they do business to fit around the processes of their platform.
Tim Sargisson, chief executive of Sandringham Partners, said: “As a former chief executive of James Hay Platform, I’m only too familiar with the notion of platforms trying to be all things to all people. This was usually driven by the sales team who would tell you how much business we would write if only our platform could accommodate this or include this fund.
“Therefore, many platforms became too wide and too shallow in terms of their offering. In other words, they lack real focus to support advisers who over the years have created a clear customer proposition.
Mark Sanderson, managing director of UK and international at Praemium, said: “If firms, having looked into every aspect of running their own platform, can still see a compelling case for why DIY will provide the best outcome for their clients and their business, then there are a couple of really good providers out there who will do a great job of setting them on that path. And from what I can see they are able to cater for firms of different sizes – as long as the firm has appropriate capital reserves and fit and proper people to hold the additional responsibilities.
“Having thoroughly researched the ins and outs of going it alone the firm will be keenly aware that running a platform compliantly is a huge commitment in terms of time, money, and on-going resource. If that initial and on-going outlay, plus the hoops needed to be jumped through to gain the appropriate permissions, will ultimately add value to that firm’s clients and enhance the advice process, then all power to them.
“If, however, this is a reaction to the frustration they feel with the service and proposition provided by existing platform providers, then I can see many will instead come to the conclusion that they are simply on the wrong existing platform.
“They will look to move to one that has proprietary technology and is able to respond to their evolving needs and feedback and can do so quickly. Or they may look to a platform that has open APIs, which will go a long way to address the justifiable rancour about the market’s general lack of integration and systems not talking to one another, plus all the re-keying and potential for error that entails.”
The rise in advisers wanting to run their own platform can only mean that there is something missing with providers currently in the market.
Fintech firms entering the market to provide the tech for firms to run their own platforms can surely be seen as a bad thing for the platforms.
Lewis Brownlee’s Page said: “I think competition is great for the sector and perhaps those business that have had it their way for a long time… might not do so in the near future.”
Mark Rendle, head of product AJ Bell Investcentre, said: “A healthy market provides a broad range of solutions to be meet the varied needs of advice businesses and their clients. This includes the ability for some firms to widen their scope and delivery through their own branding, where appropriate.
“We therefore welcome the variety of solutions currently available for advice firms and their clients, whilst reminding firms to ensure they have a detailed understanding of the impact of any change in platform strategy.”
44% of advisers is not the whole market but it is a big chunk of it.
Platforms will not be going under with the change in adviser mentality, but they surely will be affected by this DIY attitude in the future.
Sandringham FP’s Sargisson said: “Seccl, Hubwise and Multrees are building things which work differently. That might be integrative open architecture platform or deep customisation like Fundment.
“We are going to see seeing these more specialist, smaller platforms starting to gain ground on the bigger players in a £60bn ($82bn, €70bn) market, so there is plenty to play for. These platforms have a genuine specialism and angle are really going to stand out. I believe it is too early to say if this will radically alter the market. The more removed a platform is from the needs of the business and the clients the more these disrupters will gain ground. Exciting times.”
Praemium’s Sanderson said: “I do not expect to see a wholesale move across to DIY platforms, I suspect that the majority of firms, having given it careful consideration, will opt instead to see what else the market has to offer them.”
AJ Bell’s Rendle added: “Owning and operating a platform remains a costly and complex undertaking requiring scale and a range of support services beyond those normally seen in most advice businesses.
“These businesses continue to focus on driving efficiencies and improving client service; for some this may mean an increased involvement in the delivery of platform services, others will continue to focus on their core provision, of quality financial planning, and find an external platform to help them deliver this.”
PFS’ Lord said: “As technology continues to evolve, I do think we will start to see more advice firms owning the platform they use to deliver to the client, however, in my view this is likely to be a slow evolution rather than a mass migration to this way of operation.”