Consultancy Corner: A Big Year For Platforms
06 March 2018
Already an eventful year, Miranda Seath of Platforum looks ahead to what we might expect for platforms in 2018.
While 2017 might have proved uneventful, 2018 is set to be a far more interesting year for platforms, writes Miranda Seath
If I look back at the past year in platforms it could appear, to the trade press’ chagrin, that not much eventful happened. 2017 at times felt like a placeholder year. The two big platform acquisitions at the end of 2016, , did not presage a wave of consolidation. The shadow of MiFID II loomed large. Platforms had their work cut out and their wallets lightened in preparation, but technically D Day took place on 3 January 2018.
Aviva, Ascentric, FundsNetwork and Aegon all kicked their re-platforming/technology upgrades (depending on your preference) down the road to 2018. The added complications of MiFID proved too great a spanner in the re-platforming works.
In fact, in 2017 direct platforms hogged the limelight from a Barclays relaunch to Vanguards first foray into platforms. There was some acquisition activity here too. Interactive Investor, a relative minnow in direct platforms, also completed its deal to acquire the mighty TD Direct Investing.
Nevertheless, we have picked out two themes that had an impact in 2017.
PLATFORMS AS RETIREMENT VEHICLES
More than three years on from pension freedoms, Platforum data shows that 82% of net sales on adviser platforms were to pension wrappers in Q3 2017.
These flows were turbo charged on many platforms by a flood of DB to DC transfers. Platforms could not ignore retirement and many focused on improving their propositions to support advisers and their clients in decumulation. But it was not quite gold stars all round. The most sophisticated platforms for retirement allow income to be taken on any date and from multiple wrappers. They are still in the minority.
THE RELATIONSHIP BETWEEN SCALE, CHARGES AND VALUE
Prompted by the FCA’s Platform Market Study, one of my burning questions of 2017 was is there a relationship between scale and better value for the investor? The competition team was in data gathering mode asking incisive questions of platforms, including should platforms be doing more to secure preferential rates from fund groups? If the FCA finds that they should, platforms building scale with healthy net flows have a stronger negotiating position here.
As most platforms charge on a percentage basis, scale can also be used to lower charges to investors without having a detrimental impact on service and user experience. Zurich’s fee reduction just squeaked into 2017 in December. Aimed at investors with portfolios greater than £500,000, Zurich cut charges for this tier from 22 to 10 basis points. This move should offer better value to clients approaching retirement who have built up their pension pots.
LOOKING AHEAD TO 2018
Journalists across the country can breathe a sigh of relief because it should be a big year for platforms. It’s always dangerous to make predictions but we might see platform net sales hit £100 billion as the flood of pension assets shows no signs of letting up. But as pension assets continue to flow onto platforms, we would like to see platforms do better in supporting investors decumulating assets. The flexibility to pay income on any date would be a good start.
Many platforms are investing in improving the user experience and this will continue to be a focus. But advisers will be expecting a high degree of support in 2018 as they grapple with reporting charges ‘ex ante’ from 3 January and ‘ex post’ at the end of 2018 in pounds and pence. Many will be looking to their platforms to help them provide this data accurately. We also expect to see greater consumer price sensitivity.
The second half could be interesting as a number of platforms emerge from pulling the trigger on re-platforming. We wouldn’t bet against further platform consolidation either.Miranda Seath is research director at Platforum