Adviser platforms suffered a combined pre-tax loss of £19m in the 2015 financial year, a report from consultancy group Finalitiq reveals.
The platforms made £7m profits in 2014, but increased competition saw margins in the sector hit and a £26m swing into the red.
Of 26 platforms covered in the report, 15 reported pre-tax profits at the end of last year.
However, only 11 had positive earnings and 15 have seen a cumulative loss of £735m in the profit and loss accounts.
The study suggests there is no direct correlation between profitability and assets under advice for most of the platforms.
Currently, the largest firms by assets are Cofunds, Fidelity, Old Mutual Wealth, AJ Bell and Standard Life Wrap. Of these, only AJ Bell ranks in the top five by pre-tax profit, along with Tansact, 7IM, James Hay and True Potential.
The report also estimates that replatforming works for Ascentric, Alliance Trust Savings, Aviva, Cofunds, FundsNetwork and the OMW platform will cost firms nearly £1bn and will see over £200bn in assets migrating.
Finalitiq founder Abraham Okusanya believes that “too many platforms hang in the balance”.
He says: “With most clients facing a 30 year plus retirement, advisers want to select platforms with the best possible chance of being around for the long haul, to deliver consistently superior service and never-ending investment in technology.
“Platforms are businesses and without profits, it’s hard to see how a business can continue to exist, compete and serve customers.”
Aspect8 financial adviser Claire Walsh says: “Platforms have huge initial investments before they’ve got enough assets to make profits so it is normal to have losses at the beginning.
“For example, this happened to Nucleus where they had five or six years losses before going to profits. Anyway, there are too many platforms out there so we’ll see consolidation picking up.”
M Thurlow & Co senior partner and adviser Blair Cann says that though platforms are an innovation for investment, he does not think it is necessary for an adviser to place assets on them.
He says: “We treat our clients in the old fashion way always. I can’t see ourselves changing on this.
“‘Platform’ means different things to different people. Some of our assets might fall on platforms like FundsNetwork, but we don’t take any positive steps to put our assets on platforms.”