Although I have no direct evidence to support this feeling, I sense that the past interest and motivation of IFAs to move towards using Wraps has become less certain in recent months. There is no doubt that the number of Wrap providers in the UK has increased in response to past demand expectations and this has given advisers a wider choice, but most Platforms are still loss making and still have some way to go to extend the range of funds and services expected of them by the IFA community.
We are still waiting for the FSA to publish the results and conclusions from the Thematic review into the use of Platforms. However, with what has been written so far, there is likely to be a need for significant investment in extending the platform capability to ensure that they cover the whole market . The concern about whether one Platform can provide comprehensive and fair analysis of the market has already been expressed in CP09/18. As things stand, it would be difficult to see a single Platform meeting the expectations of the FSA. Indeed, the question may be what number and combination of choices would give this degree of coverage and how would and IFA manage such a combination to deliver the right customer outcome in a cost effective way. There would also be the challenge of how integration between any such combination and other Practice management technologies may work.
With RDR, the Provider backed Platforms will have to ensure and show that there is separation of influence between the use of the Platform and the sales of their products. As a result, the original motivation for the multi-million pounds of investment may be more difficult to justify – especially if the bigger investment and development is to expand the range of funds and investment vehicles, so diluting their own business volumes.
Some of the motivation of IFAs towards the use of Wrap has been to move their business models towards a fee – FUM – rather than commission basis. However, there remains some question over the ‘transparency’ of charging on Platforms, both for Advisers and for the Fund managers. Transparency will need to address ‘disclosure’ (clarity) objectives and also ensure that there is no Product Provider influence over remuneration – hence potentially reinforcing the need to separate the Product Provider and the Platform Provider relationship. One of the benefits of Wrap is that they typically require and show that there is an ongoing servicing relationship and this can help with fee justification. However, the FSA has already said the move of customers to Wrap alone should not be used as a means of increasing the costs to the end customer.
Some of the Platform providers have sought to incorporate a range of tools and services into the Platform. Some even had aspirations that their Platform would be a source of all an IFAs needs. But many of these tools potentially duplicate those tools that are available via Financial Planning, POS and Back-office providers. These cost money to provide and as we move forward, the need and justification for this investment will become challenged, especially in relation to the potentially stronger pressure to invest in ensuring they have wider market coverage.
The pressure to invest in wider coverage when Platforms are still loss making and facing greater competition is going to be a difficult balance. The Providers will be losing the ‘cross subsidisation’ argument for internal funding and some of the ‘Independent’ platforms may struggle to raise the investment capital. Ultimately, this may result in cross platform collaboration and/or M&A activity to effect consolidation. In the meantime, we await the publication of the FSA review and any proposed changes to how Platforms are to be regulated.
