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.

Where you sit in the Financial Services supply chain will affect your perspective of whether you have the same, similar or different issues when looking at some of the key challenges set out in last week’s blog.

For the many Providers, in an increasingly global market, they would probably like to exploit synergies in product manufacturing and operations. Whether they could design a set of product ‘chassis’ may be debatable but parochial regional interests can get in the way even if it were possible. Many see the aspiration of a common, consistent technology infrastructure as a ‘pipe dream’ but Providers are going to have to re-examine what is possible and acceptable. Developing, maintaining and servicing products on legacy technology is expensive and time consuming. To compete in the future speed to market is going to be critical, as is the ability to adapt to the different needs of consumers along with the capability to change products and services based on customer feedback, along with emerging trends and opportunities.

In the past, many products have been too complex and so taken more development effort, time, money and ongoing service than was necessary for many of the customers. However, with little or no ‘experiential’ data or feedback, providers continued in blissful ignorance. Indeed, it could be argued (as the FSA would do so) that Providers used commission to ensure that they achieved sales of poor products. Many IT systems are a constraint to innovation and speed to market and whilst there is always a concern about what technology alternative to choose, a failure to act and not do so with knowledge and speed, is a certain recipe for future failure. Providers have wanted to ‘own’ their IT operations and so many have IT departments that are bigger than technology companies. Some have ‘outsourced’ their operations, but this is disguising rather than solving the problem. The world has moved on and more and more businesses are looking to adopt a SaaS strategy.

With the effect changing remuneration from ‘Provider determined’ commission payment outlined in the RDR, Providers are going to have to look very hard at the operational costs of their business. Products will have to be price and feature competitive, as well as being able to offer a quality service. How they choose to distribute products will also be a key issue. There is real a danger that the ‘commoditisation’ of products could leave many unable to compete in an Adviser (IFA) only route. Do they aim to be in a niche and if so which one? Do they operate a tied/multi-tied model or work on a ‘direct to consumer’ model. Each of these has different product, remuneration servicing implications. There is little doubt that the next few years will see some significant consolidation and it is likely to the strategically strong innovators that survive.

When looking at the analogy of car manufacturing, do Providers aim to have an entry level model such as the Tata Nano for one market segment and separate ‘luxury’ marque such as the Jaguar for the better off? Taking this analogy back to how Ford created their product development and we could see an underlying chassis and certain ‘parts’ such as on the Mondeo being used with the jaguar X-Type brand. Common architecture and component re-use should be sought and exploited where possible. A ‘Wrap’ or ‘offset’ concept may also be worth exploring; it may be a degree of ‘snob value’ but if all those who say they are going to concentrate on the ‘Wealth Management’ space, it will be very crowded and very competitive! The mass market can still be served profitably, it will require a different approach to product development and distribution. A simple, low cost product that can be easily understood and bought, may not meet the ‘ideal’ of some untopians (including FSA personnel), but if it is possible to ‘upgrade’ or ‘trade-up’ – perhaps with advice, the objective of getting from A to B may well be better served by a ‘Tata Nano’ than not getting from A to B at all.

In next week’s final instalment, I shall wrap-up with some distributor views.

Well, after the excesses of the Christmas and New Year break, I decided to switch on my ‘geek’ mode and have a go at installing Microsoft’s new trail operating system, Windows 7.

Announced at the recent CES event in Las Vegas by Steve Ballmer, Microsoft’s CEO , Windows 7 is the replacement for the much maligned Windows Vista. It’s come around faster than previous Windows upgrades – only three years in development, where the norm is around four. For those in the development community, Windows 7 beta has has been around for a few months, but the general public was given the chance to download from the 9th January.

The release had a bumpy ride, with Microsoft servers being overwhelmed, but from about mid-Saturday the download was re-instated. So, I decided to give it a go – after all, it couldn’t be any worse than my experiences with Vista Business Edition (too many to go into here!).

It took about 1 hour and a few restarts – but it works; and for a beta release it works incredibly well.

I love its speed and the new taskbar, where you can pin your favourite applications but also jump straight to opened documents and also pin favourites, too. I’ve not found any application that doesn’t run apart from needing a little tweak to Google’s Chrome browser.

So, in my limited example, it looks like Microsoft have a winner here – the next job will be to attempt to persuade those who have paid for Vista to upgrade again and to undo the negative press around the Vista story.

Let’s see how it goes.