Choosing an Adviser Platform October 2016
ABOUT THE AUTHORS Miranda Seath is a Senior Researcher at Platforum where her focus is on the adviser platform market, trends in financial advice and fund distribution. Miranda has extensive experience in researching retail financial services. Before joining Platforum, she was Head of Marketing Communications Services at Marketforce Business Media helping clients to develop content and thought leadership on strategic issues in financial services. Miranda read Ancient and Modern History at St Hilda s College, Oxford and has an MA in International Studies and Diplomacy from SOAS. Andrew Ashwood is a Research Associate at Platforum where he focuses on the adviser platform market and platform pricing, as well as supporting the quantitative research effort across all of Platforum s publications and bespoke projects. Previously, he gained experience working with data and analytics at one of the UK s largest retail banks. Andrew has a degree in Economics from the University of Warwick with a focus on econometrics, statistics and behavioural economics. Danby Bloch is co-founder of Taxbriefs Financial Publishing, chairman of London IFAs Helm Godfrey and is a former director of wrap operator Nucleus Financial Group. He is also a regular speaker and has written and edited a number of books on financial planning. Danby is a consultant to the Platforum team. His focus is on events, publications as well as general platform and investment policy and industry issues. Danby was Chair of Governors of Oxford Brookes University and subsequently its Pro- Chancellor. He is currently chair of the Oxford Playhouse. Danby read Politics, Philosophy and Economics at Oxford University.
CONTENTS 1 Initial decisions when choosing platforms 5 1.1 Model portfolios 5 1.2 Discretionary fund managers (DFMs) 5 1.3 Client segmentation 5 1.4 On-platform or off-platform? 6 1.5 Who will pay for the platform? 6 2 Changing to a new platform 7 2.1 Switching platforms 7 2.2 Choosing a platform for new business 8 3 Platform charges 11 3.1 Key variables in determining charges 11 3.2 Modelling charges using scenarios 11 3.3 Special deals 15 3.4 Advisory firms in-house platforms 16 3.5 Future charging expectations 16 4 Other key platform features in selection 18 4.1 Service 18 4.2 General web usability 19 4.3 Functionality tools 21 4.4 Investment choice 22 4.5 Tax wrapper choice 23 5 Platforms financial sustainability 24 5.1 Size 24 5.2 Market share 24 5.3 Profitability 25 5.4 Growth in assets under advice (AUA) 25 5.5 Gross and net sales 27 6 Overall assessments of platforms 29 7 Platforum s comments on individual platforms 33 8 Pricing Directory 42 9 Appendix 55 9.1 Notes on individual platforms 55 10 List of tables and figures 56 10.1 Tables 56 10.2 Figures 56 Copyright Centaur Communications Ltd 2016. All rights reserved.
INTRODUCTION The aim of this report is to help financial advisers decide on a platform strategy for their businesses and then select the right platform (or possibly several platforms) to meet their requirements. This process is generally described as due diligence. The importance of platforms to advisers Platforms remain one of the key components of an adviser s investment proposition and have come a long way since they were first introduced to the UK adviser world at the start of the century. Platforms provide much of the machinery for advisers to buy, sell and hold their clients investments. Increasingly platforms have taken the place of life offices (although some platforms are parts of insurance companies) as providers of pension, life assurance bonds and ISAs. They are typically the main way that advisers report on investment performance to their clients and provide them with continuing picture of the whole of their invested wealth. Platforms also provide the means by which advisers typically charge their clients for their services post- RDR. Advisory firms crucially depend on platforms as some of their main business partners and so the choice of platforms is a very important decision for them. We hope that this report will make their job of reviewing existing platform relationships and choosing new ones easier and more effective. The FCA s view of due diligence The regulator has also made it clear that due diligence of platforms is an important function for advisory businesses, especially those that retain the status independent. In recent FCA reports, the regulator has found evidence of status quo bias and familiarity in advisers who cling to their old platforms choices regardless of their merits. In a different context Hilaire Belloc urged children to Stay close to nurse for fear of meeting something worse. The FCA clearly does not adhere to this adage and expects advisers to undertake serious due diligence processes not just exercises that conveniently confirm that the original platform choice was the right one all along. Platforum s research The information in this report is derived from Platforum s continuous monitoring of the platform market that we use to generate our regular bulletins and market studies to our subscribers. Our approach is to: Carry out regular surveys of hundreds of adviser firms Hold qualitative research meetings with advisers, DFMs, fund managers and other platform stakeholders Engage the platform industry in an ongoing conversation about new developments We have distilled many pages of this information into a report that we hope you as advisers will find of practical help in your due diligence processes. We hope it will become a regular publication for the market. 4
2 CHANGING TO A NEW PLATFORM The FCA has been vocal about advisers status quo bias when conducting platform due diligence. Its thematic review, TR16/1 Assessing suitability: research and due diligence of products and services published in February 2016, finds that advisers are prioritising their own needs ahead of their clients: "in some cases, firms placed the level of service they received ahead of the level of service received by the client." The implication is that advice firms are reluctant to change platforms, even if a more suitable platform for their clients is available. Whether using a new platform, switching assets between platforms or maintaining the status quo, due diligence must take into account how well the platform will serve the client s needs. You should be mindful of the FCA s thematic review when evaluating whether to place assets on a new platform or to transfer existing business from one platform to another. 2.1 Switching platforms When it comes to switching between platforms, cost has been less important to advisers than service. Reasonably, advisers argue that competitive pressures have made costs converge somewhat in the past and will probably continue to do so. The reasons for switching assets away from a platform mainly have to do with service levels, usability and functionality. It is only after these issues are satisfied that cost and fund choice come into play (see Figure 1). Price differences between platforms are often not large enough to prompt a review of switching platform use. Few advisers would decide to move the flow of their new business from one platform to another for less than 10 bps. Where the difference in prices is more than 10 bps between two platforms that meet the adviser s requirements, the chances of switching new business are greater. Figure 1: Top five reasons for transferring assets away 80% 70% 60% 50% 40% 30% 20% 10% 0% 68% 49% 48% 44% Sample 32% 30% 26% 22% 21% 20% Order of importance of factors 1st 2nd 3rd 4th 5th 16% 15% 15% Source: Platforum, October 2016 What has prompted you to think about transferring assets away from a platform? Base: 82 advisers transferring away assets 7
2.1.1 Considerations when switching platforms The decision to transfer assets from one platform to another involves these main considerations: It may absorb you and your staff in more work so consider the costs that a client may be prepared to pay for in part or in full. When clients transfer, they could encounter tax issues especially if the new platform requires the encashment of a bond or the disposal of funds subject to CGT. You could find that some clients will be out of the market for some days regarding some investments. Check the typical processing times of the platform and whether the platform is able to pre-fund. You would need to find out the level of accuracy with which the platform has previously re-registered assets. It would also require an assessment of whether the new platform supports the same funds, investment products and tax wrappers as the old platform. The new platform may not offer the same advantageous terms for certain funds as the old platform. We understand that exit charges are no longer levied by platforms and shouldn t be a barrier to switching. Sample Faced with these considerations, it is hardly surprising that we have discovered that the criteria that advisers generally use for switching between platforms are more demanding than those they employ for changing the direction of their new business flow. Like most advisers you may have built up a view of your ideal, perfect platform. And it is this platform that you could be looking for when choosing a platform for new business rather than deciding to switch out of an existing platform. Most advisers criteria for selecting a platform for new flows of funds are in the following broad order of importance, which you could find helpful: 1. Low charges 2. Service 3. Investment choice 4. UsabilityFinancial stability 5. Functionality 2.2 Choosing a platform for new business 8
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