Platforms’ dilemma is whether to stick with the old tech and fall behind with the whizzy new things advisers and clients increasingly expect, or abandon the creaky old tech and live through the sheer hell of replatforming. As we have seen this year, the unenviable choice is between a slow death from obsolescence or a quick and spectacular storm.
Aegon and Aviva both experienced major difficulties and plenty of adverse publicity. Since then, other platforms have proceeded far more cautiously with their migrations and technology upgrades. Shifts across have been postponed, phased in slowly or implemented on a more piecemeal basis.
Platforms have learnt the benefits of moving over adviser firms one by one, changing individual facets of their proposition one at a time and running the old and new systems in parallel. We don’t expect any other groups to copy Aviva’s heroic approach of migrating their whole proposition over a single weekend.
Ultimately, the platform market should end up in an improved place after all these upgrades – better able in future to adapt to advisers’ and clients’ many evolving needs. There are plenty of challenges for platforms. Pension freedoms are still bedding in, and advisers are looking at novel ways to deliver clients’ retirement income. Then there’s open banking and the pension dashboard, that in theory at least should help platforms become even more valuable hubs for clients’ finances.
Platforms occupy a unique position in the market, sitting between clients, advisers, discretionary fund managers and asset managers. They are therefore hit on all sides by regulatory requirements and client expectations. Mifid II’s 10 per cent drop rule is a classic example of platforms sitting at the information nexus. Platforms hold the data and play a key role in informing clients. If their technology can’t deal with the operation of Mifid ll, life becomes very tough indeed for advisers and DFMs.
Robust technology is vital for platforms, allowing them to adapt to regulatory changes and develop the services advisers and their clients are clamouring for. Increasing cost pressures are driving platforms to become more efficient and cut out manual processes. New platform technology will help them achieve this, but there’s still some way to go.
Replatforming can’t take the shine off tech improvements
Most of the platform technology headlines in 2018 centred on the re-platforming woes of a few big firms moving their core operations onto one of the increasingly dominant major administration systems. It’s tempting therefore to summarise 2018 as a difficult one for system suppliers in the platform sector but, behind the scenes, technology has been quietly improving in one increasingly important part of the platform world: transfers.
Historically a laborious manual process which involved selling assets on one platform and buying them again via another, transfers have been undergoing a bit of a revolution in recent years. Last year around one million assets were re-registered electronically as part of a portfolio transfer and the number of firms who are now “wired-up” for this service – called TeX open transfers – increased by half during 2018 and should pass 300 early next year.
The practical consequences of this are that 50 per cent of transfers between these firms now complete within two days rather than over several weeks, which was typical for the paper-based equivalent. Where all the parties involved are integrated with one of the various transfer systems available, the timescales can be even shorter; the record to complete a stocks and shares Isa transfer now stands at under 4 minutes including re-registration of all the assets plus transfer of the wrapper itself.
Meanwhile the transfer story is improving in other parts of the financial services sector too. Over 60 of the leading banks and building societies are now connected to the BACS electronic cash Isa transfer service and Origo reports that average times for cash pension transfers have continued to fall – from 12 days in 2017 to 11 days this year.
And now there are signs that the walls between the different industry silos are also beginning to come down. Thanks to collaboration between BACS and some of the transfer system providers, it is now possible to seamlessly transfer a cash Isa as part of an electronic portfolio transfer between platforms without the need for separate processes. There are hopes among some in the industry that this more collaborative approach will extend further next year to enable platforms to transfer an even broader range of wrappers and assets electronically.
Kevin Okell is managing director at Altus
Decumulation functionality dropped down the ‘to do’ list
One character absent in 2018 has been ‘Ant’ McPartlin, leaving his co-presenter ‘Dec’ Donnelly getting most of the airtime.
Over in investment world it has been the other way round, with plenty of airtime for ‘Acc’ but not much for ‘Dec’, the Dec being decumulation.
Pension freedoms started in 2015 but launches of new decumulation-specific investment solutions have been conspicuously absent. Why?
Well, one reason we didn’t see ‘Dec’ or much by way of new platform functionality was that platforms have been scared by Mifid II, GDPR and possible surprises in the FCA platform market review this year. All platform resource was deployed in behind-the-scenes IT upgrades. Then there were the overrunning and troubled re-platforming projects. Effort in 2018 has been towards making sure platforms are stabilised, and with £170bn of assets in flight there was much to lose.
Transact, Nucleus and AJ Bell all floated. Alliance Trust joined Interactive Investor in the advised platform jungle challenge. AJ Bell and 7IM brought their own-brand funds to market and we had the big Smithson investment trust launch. If anything, platform functionality reduced as freebies that might be considered inducements were pulled.
Meanwhile in the direct-to-consumer platform market, robo-advice continued to advance. Santander and HSBC went with robo propositions, but in reality, it is all automated customer risk assessment and portfolio selection because it’s still not really advice is it? This tech can work with human interaction but it can’t totally replace it.
Since the mid-year, robo providers have been lobbying government and the FCA about over-regulation. Building a direct business is hard. It took Hargreaves 25 years to get to their dominant position, and you can’t build that kind of scale with a five-year plan.
When it comes to flows, our data indicated very strongly that the defined benefit transfer party started to wind down in the summer due to FCA scrutiny, professional indemnity and falling transfer values. So there is less money flowing in and it’s going to be harder to hold on to fund assets next year.
At the start of 2018 we still had reasons to be cheerful with low interest rates heralding a further good run for equities and bonds. As the year progressed, volatile markets caused by trade wars and rising bond rates led to net outflows from funds in the third quarter. Most advised platforms saw falls in gross and net flows though they were still positive overall. Investor confidence has declined big time. The interesting unanswered question is where is that money going? It could well be cash despite the low rates.
Known drivers for 2019 will be the investment platform study final report in the first quarter, the Retirement Outcomes Review and the Single Financial Guidance Body. How will they all interact with us? Not to mention the Berkeley Burke Sipp appeals, the pension dashboard, vertical integration and adviser firm consolidation.
Will 2019 be the year we see better decumulation products, proper DFM drawdown offerings and blended retirement solutions? Acc is essential but it is a double act, you can’t have Acc without Dec, here’s to 2019 with both.
Gavin Fielding is editorial director at Fundscape
Getting ready for the ‘endgame’
It’s been another eventful year for the platform market with a host of regulatory news and technology upgrades all taking centre stage, but one area which warrants particular attention is the shift in outlook for advisers and their clients around what has been widely termed as ‘endgame’ planning.
While the adviser community and platforms have become ever more closely aligned thanks to the development of centralised investment propositions over the last decade, we see increasing scope for this to be enhanced as ‘in retirement’ planning comes to the fore.
This is a major shift in thinking for both advisers and platforms that has only come about post the introduction of pensions freedoms.
Previously, the decumulation phase was something of a non-starter for advisers and platforms alike, but that scenario has been turned on its head now, with pensions freedoms combining with very low annuity rates and shifting demographic trends to create an increased need for advice in retirement.
As with the development of centralised investment propositions over the last decade, this shift will take time to become ingrained, but we expect it to be one of the dominant trends driving adviser businesses (and platforms) over the next decade as more and more people require help.
Advisers are best positioned to help clients tackle and manage their retirement in the same way they have helped them save and prepare for it.
Arguably, it is an even more crucial service to offer clients. This is because once in retirement, the danger is that pots can be eroded very swiftly as income is withdrawn, with the fear of actually running out of money in retirement much more tangible than in previous eras.
There is also a clear business case for advisers and platforms to ensure they are joined up on this, much as they have become on centralised investment propositions.
Advisers will need solutions around income in retirement to help them streamline the advice process, and we expect platforms to be key to that, just as they have been in helping to create centralised investment propositions.
Stats from the Lang Cat show some advisers are ahead of the game here, with many already using such solutions, and we expect this to accelerate rapidly as advisers see the significance of in-retirement planning for both their clients, and their own businesses.
This is far more than merely a focus on income, however. This is about mapping out near-term cash requirements for clients alongside long-term planning and life goals, including the management of assets which clients want to pass on to their families.
Verona Kenny is head of platform at 7IM