The Platform market is in an interesting and potentially challenging place to be at the moment. As we have said in the past, there has been strong growth in the number of Operators and in the ‘Assets under Administration’ (AUA) on Platforms. The number of Platforms is currently circa 20 with several more in the pipeline and some people still considering whether they should enter the market. The AUA is over £100 billion having grown by some 46% over the last year and expected AUA of over £300 billion by 2012.

With adviser interest in making Platforms part of their business models, it would seem that there is a good commercial case for Platforms. Indeed, it is likely that firms will need to consider not just whether they do adopt a Platform strategy but why they wouldn’t. The FSA Discussion Paper 10/2 has added to the debate with a range of questions about the due diligence, ongoing management, segmentation and customer solution matching along with remuneration methods and transparency as well as best execution.

We have looked at a number of Platforms and written articles as part of our weekly PA column. We have also looked at a recent initiative by Capita that has seen the launch of the Synaptic [Platform] Comparator. There has been some debate about whether it is possible (or right) for a firm to choose a single Platform. The FSA paper said that although they do not expect firms to review the platform market for each client, they do expect firms to consider which platform(s) are appropriate for their client bank – or segments of their client bank – in general terms and then ensure the recommendation is suitable for individual clients…

Different parties have chosen to interpret the FSA statement in different ways. Clearly, there is further debate and lobbying to take place on what is and isn’t acceptable. The Consultation Paper was expected midyear but this has now slipped to Q3 – perhaps giving an indication that there are still some challenges to be resolved in the mind of the regulator. We have written a Paper on the subject of Platforms – available here…. In addition, we have reviewed the Synaptic Comparator product that has now been launched and the article will be published in Professional Adviser in a few weeks. One of the striking issues that Comparator raised was the big, maybe surprising, perhaps even shocking differences in the potential customer outcomes. Platforms do not have simple, consistently clear and transparent charges! Trying to understand the implications of the charges and to compare how these affect customers’ choices is a good thing (some may not agree). If you use a measure such as ‘reduction in yield’ (RIY), or total expense ratios (TER) it is possible to see the ’drag’ of charges on an investment and this can vary significantly between first and second choice as well as the best and worst – hundreds, thousands and tens of thousands of pounds!

By fragmenting the issue of choice, some may see comparison tools as undermining the modus operandi of Platforms as being a single economic asset management solution. However, the differences cannot be ignored and the industry is likely to close some of the gaps through competitive pressure and in time is also likely to consolidate Platform choice through M&A. We believe it is better that the industry sees and addresses the differences of choice and value early as we do not want to see another potential mis-selling scandal that hurts everyone.

Advisers need to look at Platforms to assess whether they are right for their business and for their clients. They should rule in or out of having a Platform strategy with a conscious justification that is reviewed regularly and tested against segments and individual needs. The issue of choice remains, not only at outset (even if a single Platform strategy can be justified when challenged) but also through ongoing reviews for how assessments are carried out and with what frequency – periodic or on each customer transaction.

As for Platform Operators (current and potential), the question of their own business case must be robustly assessed as there is a current trend to reduce costs that could reduce or remove margins. However, there is also a question about whether some Providers can decide not to become Operators if they are to remain viable businesses in the future.

Written by Mark Thelwell - Visit Website

This entry was posted on Thursday, July 22nd, 2010 at 7:00 am and is filed under Regulation and Legislation, Wrap, eCommerce Views. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.