Following a period of platform consolidation in 2017, advisers will need to keep an eye on three key areas in the market next year.
1. Replatforming disruption
According to the latest report from Finalytiq, there is £220bn in platform assets that will be subject to a replatforming project next year, at a combined cost of £860m. These are eye watering numbers and unsurprisingly there is a clear correlation between the platforms making a loss and those that are undergoing such a project.
While it is easy to pass this off as the problem of the platform providers involved, it will undoubtedly have an impact on advisers and their clients.
The platforms will be doing all they can to make the migrations as smooth as possible but there will be issues and it will cause disruption. That is almost a certainty. Advisers need to factor this into their due diligence assessments when considering the best platform for their clients in 2018.
2. Platform market study
The FCA published the terms of reference for its platform market study this year, which, among other things, questioned whether platforms are using their scale to negotiate better deals for customers.
The irony here is that the simplest mechanism that enables fund discounts to be passed back to customers is cash rebates, and these were banned by the FCA following the RDR.
The mess of multiple share classes we have been left with is confusing and I doubt there are many consumers out there that can explain what a unit rebate is. The FCA seems to have ruled out cash rebates already and other platforms have baulked at the idea but so far I have not heard anyone come up with an alternative solution. This will be one to keep an eye on when the FCA publishes its interim report in the summer.
3. Due diligence providers
One area the regulator should look at as part of the platform market study is the role and business models of platform due diligence providers. Used by advisers to select the most appropriate platform for their clients, they have a direct impact on customer outcomes.
Unfortunately, the prevalence of “pay-to-play” in this market, where platforms that are not prepared to pay a fee do not feature in the output of the due diligence provider, give advisers an incomplete picture of the choices available to them.
The market study is an ideal opportunity to look at the role platform due diligence providers play and whether their business models are preventing consumers from accessing the best value option for their needs.
Andy Bell is chief executive of AJ Bell