Back in 2003, we conducted a piece of work for JP Morgan FundsHub. The work was set out by the estimable David Moffat, then their marketing director.
Among one of David's many prescient questions was: “Will platforms become the back office or will back office systems become the platform?”
Some 14 years later, that question is still relevant. The costly and lengthy re-registration process between platforms means advisers are leaving legacy business where it is. The only place to aggregate is the practice management system - what we used to call the back office system. Intelliflo, for example, is becoming a very powerful tool for the adviser, and, like Dynamic Planner, will help advisers wishing to digitise their business.
Aggregation is and always has been one of the planks underpinning platforms. This brings me to the FCA's proposed platforms market study.
I have often argued the regulator does not understand platforms. As the late, great Paul Bradshaw said, “Platforms are merely expensive bits of technology.” He was, as ever, right.
The platform sector suffered two quirks from its early days. Firstly, because the supermarkets were, in essence, outsourced administration for asset managers, the typical annual fund management fee of 1.5 per cent was sliced up so that the platform portion of 25 basis points was paid for by the customer (albeit hidden).
The more transparent wraps charged the customer openly. Thus, from day one, the customer was paying for a piece of software that should have been paid for by the adviser.
Secondly, the FSA treated the platform as a product, albeit, for a period, the expression changed to “platform service”. As the organiser of the Schroders UK Platform Awards, I have tried to define platforms countless times, and always failed.
But now the so-called platform is no longer a piece of software. It is a collection of systems. As an example, Nucleus runs on Bravura, but its administration is on Genpact's platform - so that is three bits to start with. Best Practice chief executive Ian Cooke has built Fusion Wealth to support his (and other) adviser businesses, using his own firm, Creative Technology's software, with SEI doing the heavy lifting at the back end. Which bit is the platform in that scenario?
Prior to the RDR, former Towry chief executive Andrew Fisher told a conference that he did not use a platform - he used an admin hub. He added he did not expect the regulator to tell him what admin system to use. Unusually, Towry paid for the SEI powered system, and billed clients according to costs they incurred. For me this is obviously the way to go
The FCA continues to demonstrate a lack of understanding of the platform market. In its interim asset management report in November, the regulator questioned why platforms did not negotiate deals for bestselling funds. This issue has reappeared in the proposed platform paper
There are three issues with this:
New technologies are going to change the face of retail investment beyond recognition. But the regulator is continuing to look through the rear view mirror.
There should be only one concern - good customer outcomes. We need to see total transparency of all charges (including transaction charges). Charges deplete customer returns.
There is quite enough competition in the platform market, arguably too much. The benefits to customers continue to grow, including immediate valuations at any time of day and the ability to perform their own cash flow modelling. Individuals will soon have their own data and will be informed buyers of financial planning services and products. The term platform will become meaningless.
What the regulator should be focusing on is ensuring consumers understand where every pound is taken out of their investments by the financial services industry. wherever that is in the value chain. Yet, what we have instead is more consultation, when the emphasis should be on making a real difference to investors.
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