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.

Last week, I gave a presentation to the sales and support managers of CFS. The division has been managed by Dennis Ryan (ex Barclays) for the last few years and Dennis has taken the distribution channel through some major changes as it organises and equips itself to compete in the challenging times ahead. Dennis is a charismatic leader with a disarming nature that is unusual in someone of his position. Originally from the North East, he is so ‘down to earth’ that his management team and colleagues ‘look up to him’! He has an open and honest approach that helps him to deliver and get support for changes that he has introduced – including a reduction in the adviser numbers from over 1,000 to 600 (with increased growth and profitability).

On one slide (of too many) that was part of the presentation about the market challenges – including the global and local economy and regulation (RDR etc) – I listed a number of bullet points to illustrate the economic environment:

My point was that it is too often too easy to focus on the negatives and see the ‘glass as half-empty’ (some see it as completely empty!). I gave a personal example of how we need to put problems and challenges in context – without ignoring them for what they are. I was relating a story about the challenges of having a daughter about to do ‘A’ levels and the pressure that I was placing on her to study in order to get the grades required by her University offer (I am apparently more of a ‘stress transferor’ than a stress owner). All of this paled into insignificance (well not quite…), when, after a week of racing heart rate (tachycardic) and two occasions when she collapsed, she was eventually rushed into hospital with what turned out to be ‘massive bilateral pulmonary emboli’ (two big blood clots on both lungs) that were causing significant strain on the heart and required urgent thrombolysis. My daughter has become a bit of a phenomenon due to the rarity of the problem in someone so young without obvious linking causes, but I am sure she would prefer not to have this notoriety.

The good news is that the advice and treatment by the experts seems to have worked and although still recovering with ongoing medication, the current status is less critical and worrying than three weeks ago. The point is that however difficult the situation, there is usually a way of dealing with it and in the context of other situations it may not be as bad as we first feel.

Going back to the presentation and the bullets on the various slides, we should remember that our industry often has the knowledge, skill and experience (and products) that can help consumers to manage or mitigate some of the consequences of the problems that the economy presents. We should be proud of what we do and positive about the value we create. As I said (not original) last week, ‘the only constant is change’! Our industry needs not only to cope with change, it needs to be resourceful and adaptable in order to ‘create positive change’.

We have said in the past that the only constant in our industry is change. Well, we certainly have an abundance of change to contest with these days… the government (and its ministers), the economy generally, the stock and currency markets (prices can plummet as well as fall…!) and the ever present RDR.

Much effort and investment has been put into the Wealth and mass affluent propositions of most distributors as they come to terms with the need to charge (and justify) fees for advice. Much concern remains about whether consumers will pay fees for advice after the 2012 deadline and different interest groups are expressing conflicting views depending on their own position and motives. It’s worth remembering that consumers currently do pay for advice and whilst it is often still ‘disguised’ as commission, the reality is that after 2012, we will be working in a world where all investment advice (other than Basic) will require a fee to be identified and paid. When people ask if they would be willing to do so in the current environment, it has to be set against the context of the products current pricing and adviser’s remuneration method.

Post 2012, the price of the product will be the factory gate price and so will be different to what they would usually be charged today. The advisers charge will be specifically expressed as a monetary amount and if properly justified as being of value to the consumer, should be an acceptable price for what they get. Perhaps some advisers are struggling to justify the ‘value’ that their services give to customers and if so, they have either an education or articulation challenge (perhaps for themselves as well as the customer)!

I have heard Product Providers talk about how little they need to do to cope with the new environment, some see that they simply set the commission of the product to zero and that will be sufficient. I beg to differ, the new environment is going to be competitive and it will expose Product Providers inefficiencies in a way that they have not seen so far. They will need to innovate, make sure they add real value and deliver excellent service if they are to convince advisers and customers that they are the right choice.

Many advisers have started to review, re-engineer and improve their business propositions in readiness for the new requirements. However, just as Providers need to ensure that they are efficient and deliver excellent service, advisers will be competing to offer their services at attractive fees, which in theory can be compared by consumers as with many other commodities and services.

We have always said that technology has an important part to play, and whilst it is a cost to a business, chosen and implemented properly, it will deliver efficiencies and service improvements that help secure business and improve the bottom line.

Those who are fearful today are probably right to feel that way…they need to develop a clear strategy for not just how to cope, but how to prosper.