When selecting platforms, advisers have to reconcile two opposing interests – the needs of the client and the needs of the firm.
Platforms are products for clients, and they are the ones who almost always pay for them. But the reality is that platforms primarily provide services to advisers to help them look after their clients’ portfolios.
The two purposes have different selection criteria. There is clear evidence advisers are shifting their view of platforms and how they choose them, and that they are primarily focusing on their own needs, according to our latest UK Adviser Platforms: Platform Selection report.
This horses-for-courses approach became less relevant as platforms became more similar in their pricing and capabilities
But the good news is that maybe this is in the clients’ best interests after all.
The ‘platform as product’ approach was dominant for many years. Platforms have come in many shapes and sizes, each with their own particular features and even peculiarities.
Charging structures varied – some were great for smaller clients, while others were better for large portfolios or clients with workplace pensions.
Functionality was also different across the market. Some platforms were fine if you stuck to simple transactions, while others could handle more complicated and specialised business.
So, a firm with a range of client profiles typically used a variety of different platforms and selected them on a client-by-client basis.
Platforms may be basically quite similar but they all have their own idiosyncrasies that advisers and support staff need to master
But this horses-for-courses approach became less relevant as platforms became more similar in their pricing and capabilities. Nowadays, maximum platform charges are mostly clustered around the 0.3%-0.35% and they are expected to include almost every functionality.
Differences remain, but they have become less important, except perhaps in a few special situations.
As charges and features have converged and some platforms have become sufficiently cheap and capable for the needs of most clients, it was enough to use just one or perhaps two or three platforms.
Of course, some advisers had long ago decided to focus on a very few platforms because they had low-cost special deals with providers that were competitive for virtually all their clients – or, in a few cases, they simply had a homogeneous clientele.
Unsurprisingly, some players have called for more transparency about special deals and platform charges that mostly remain confidential
Selection on a client-by-client basis may have optimised individual client suitability (at least theoretically) but it bred inefficiencies for the advice firms that used this approach.
Platforms may be basically quite similar but they all have their own idiosyncrasies that advisers and support staff have needed to master.
Using multiple platforms means less expertise within firms in using individual platforms, together with more admin, more staff training and greater danger of mistakes. All these risks and costs are ultimately passed on to clients.
The Consumer Duty’s ever-expanding requirements for advice firms is also looming over advisers’ heads. Less efficiency and higher costs limit the scope to charge clients less.
The drive for efficiency has led many advisers to think differently and more strategically about the way they select platforms. The average number of platforms advisers use has declined as they increasingly regard them as the administrative ‘plumbing’ for clients’ investments. So, what’s changed and what has stayed the same?
Advisers’ growing focus on using fewer platforms has yet to reduce platform numbers in the market
Pricing remains important. Concentrating business onto one or two platforms allows newer platforms with whizzier tech to provide very competitive standard pricing in the mid to low teens or even less. Older platforms can often offer special deals that can match these rates or better them.
Unsurprisingly, some players have called for more transparency about special deals and platform charges that mostly remain confidential.
But clients of firms that cling to the horses-for-courses approach and pay the standard charges are probably missing out.
The adoption of adviser-controlled platforms is another sign of this shift. Larger firms are more likely to go down this route, pioneering greater control of their advice process as well as lower charges, some of which they might pass onto clients.
Another symptom is the acceleration in the volume of transfers between platforms. Over 50% of advisers have transferred assets in the last 12 months – many citing cost and service as primary drivers. Advice firm consolidation is also a powerful push factor.
Advisers’ growing focus on using fewer platforms has yet to reduce platform numbers in the market. But with more platform switching, winners and losers are bound to emerge – with the inevitable platform consolidation to follow.
Lottie Bussell-Ahern is associate analyst at Platforum
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