Just as a week is a long time in politics — ask outgoing prime minister Boris Johnson, whose premiership unravelled within 24 hours of a mass cabinet resignation — so a year is a long time in platform land.
Until just over 12 months ago, the UK platform industry was enjoying a record-breaking year as assets rose on the back of a global bull market. Platform assets were £930bn, up by 19% annually, while gross and net flows jumped to new highs of £164bn and £68bn respectively, according to financial research firm Fundscape’s 2021 platform report.
The downturn is expected to be the longest since 2008
The platform boom in the immediate aftermath of the Covid pandemic raised hopes of a market resurgence. Demand for advice increased as savers took advantage of pension freedoms and other regulatory changes.
A steady flow of private equity cash fuelled an acquisition and consolidation spree. There was a surge in sales as big providers and private equity firms returned to a buoyant platform market. Many industry insiders likened the good times to the Roaring Twenties.
Then came Russian president Vladimir Putin’s winter war in Ukraine, a geopolitical tsunami that has battered the global economy and disrupted the commodities supply chain.
The ripple effects are soaring energy prices, runaway inflation and the worst cost-of-living crisis since the 1980s.
The industry is too reliant on a positive economic outlook and robust investor confidence
Fundscape CEO Bella Caridade-Ferreira says: “The economic outlook is shaky at best, with little prospect of improvement in the short-to-medium term.
“Investors and platforms will have to learn to live with the new normal. For platforms, the downturn comes just as they face another huge regulatory hurdle in the shape of the Consumer Duty.”
Low confidence
The new normal is a continued drop in platform sales and assets due to low investor confidence, eroded spending power and market volatility. Billions of pounds have been wiped off market values since the end of a bumper 2021.
Platforms assets fell by 6.62% annually in the first quarter of this year, while sales across all channels were down by 5.31% in the same period, according to a platform market report published by The Lang Cat in July.
For platforms, the downturn comes just as they face another huge regulatory hurdle in the shape of the Consumer Duty
Another platform report, published in the same month by Fundscape, showed that gross and net flows had fallen to their lowest point since the Covid lockdowns. Isa flows also dropped, affecting the profit margins of direct-to-consumer (D2C) platforms such as AJ Bell and Hargreaves Lansdown.
Fundscape head of content Martin Barnett says: “The Isa season sets the tone and pace of investments for the second half of the year, so 2022 will be a rough ride for many D2C houses and robos — which struggle to acquire customers on good days.
“The industry is too reliant on a positive economic outlook and robust investor confidence. For many small providers the outlook is therefore bleak. We expect smaller players to close, or be snapped up by larger peers.”
Untried markets
It is all doom and gloom for the foreseeable future, then.
The Lang Cat senior analyst Rich Mayor says: “If the trend continues for an extended period, which will be the case if we can’t swerve a recession, we will see platforms moving into markets they’ve not been in before to help alleviate the pressure.
“This quarter’s likely to be the last time we see these sorts of relatively good sales numbers for a long time.”
The platform boom in the immediate aftermath of the pandemic raised hopes of a market resurgence
Mayor notes the challenging conditions will continue if a recession is not averted. But all the economic indicators suggest a major downturn. The Bank of England warned of recession as it raised interest rates to 1.75%, with inflation set to pass 13%.
The UK economy is forecast to shrink from the last three months of this year until the end of 2023. And the downturn is expected to be the longest since 2008.
It will be a bumpy year for us all.
Momodou Musa Touray is a reporter. Contact him at: momodou.touray@moneymarketing.co.uk
This article featured in the September 2022 edition of MM.
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A spell of reduced inflows to platforms, even a prolonged one, is likely to cause severe stress only to smaller players. The important thing in such times is to keep hold of what they already have.
Indeed Momodou
But you have possibly put your finger on one of the root causes – “savers took advantage of pension freedoms”
With the resurgence of annuities many are now not staying invested. As interest rates rise, followed by even better annuity rates this effect will continue. Advisers, fund managers and platforms that have been gorging on the profits that drawdown has gifted them will now have to think again.