According to Fidelity FundsNetwork head Pat Shea, the UK platform market has too many sub-scale players. As such, consolidation is inevitable.
Running a platform takes a huge amount of investment, he says. Managing regulatory change and keeping up with things like cyber crime is costly. Over time, it is hard for some of the smaller players to keep pace with everything that is happening.
“There are a number of companies kicking the can down the road. They will need to replace their technology in the coming years. It’s a lot of work and many underestimate the focus required.”
He broadly agrees with our forecast that three-quarters of platform assets will sit on just four platforms in the next five to seven years.
“We’re going to see a barbell effect. There will be four to five main players and four to five more niche players doing more esoteric things.”
Shea celebrated 31 years with Fidelity in March and has a unique perspective on the UK retail investment market, having previously worked in Boston, Hong Kong, Taiwan and Bermuda.
In the much larger US market, there are a few larger players like Fidelity, Charles Schwab and TD.
He does not think the UK can support all of the platforms we have here now.
With regards to FundsNetwork, Shea says it is not planning any major acquisitions.
“We are focused on building the best platform we can for existing customers. Acquisitions have the potential to distract.”
Vertical integration is also a no-go area. “We are not going into full financial planning. We view that as competition with customers.”
He notes an interesting trend in the US, whereby advisers with the big stockbrokers are realising that the client belongs to the organisation. As a result, a number are breaking away and have started their own businesses.
For Shea, the UK investor is far less engaged with investments than some of the other markets he has worked in. He says: “Different markets are at different points in their journey. The UK is ahead on regulation, like the RDR, while the US is ahead on investor engagement.”
He believes the greater level of engagement is in part due to an earlier transition from defined benefit to defined contribution plans. The US is around 10 to 15 years ahead of the UK in that shift, so there is more experience with having to save for retirement and managing investments.
Looking ahead, Shea is particularly interested in tools that allow people to aggregate their financial affairs into one place.
“It’s not just about aggregating D2C and adviser assets; it’s about pulling together the likes of insurance, mortgage and banking all in one place.”
Shea took over responsibility for FundsNetwork in 2012, one year before the RDR.
“We looked at the business and recognised we needed to fix some stuff,” he says of the time. Its plan for investment was approved in 2013 and he and his team have been delivering on it ever since.
That same year FundsNetwork launched its pension. Ahead of the pension freedoms, the timing could not have been better. Auto-enrolment and the pension reforms have been two of the biggest things to happen in the UK market over the last 10 years, he says.
This year will be an important one for FundsNetwork as it begins the process of migrating clients to a new website and platform that will include such capabilities as pension, cash management and full stock brokerage.
The new platform is already live and is being tested by some clients.
“We are essentially moving from being a fund supermarket to a full wrap. We’ve been in the trenches day to day building it, and we are coming out now to deliver. Defining strategy is easy; executing it is the hard part.”
Shea has a reputation for being an operations heavyweight and rumour has it Fidelity’s re-platforming project has come in on budget and on time.
A proud father, Shea often mentions his children. His son studies politics (“apparently there’s a need for more politicians,” he quips), while his daughter is a maths and physics whizz, with an interest in art and theatre too.
So would he do anything differently?
“I’ve had an awesome career and have zero regrets. Since I joined Fidelity, the business has grown from billions to trillions. And I’ve seen the world, so I am really fortunate. I don’t wish I’d done anything differently.
“That said, maybe I’d go into engineering: making something I can put my hands on.”
Spoken like a true operations guru.
Heather Hopkins is head of Platforum.
She can be reached at email@example.com
2012–present: Head of FundsNetwork, Fidelity International – UK
2009–2010: Country head (interim assignment), Fidelity International – India
2005–2012: Head of UK/European customer services, Fidelity International – UK
2002–2004: Managing director/country head, Fidelity International – Taiwan
1999-2002: Asia Pacific region chief operating officer, Fidelity International – Hong Kong
1998–1999: Country head, Fidelity International – Bermuda
1994–1999: Head of FIL global compliance and fund treasury, Fidelity International – Bermuda
1986–1994: Various roles, Fidelity Investments – United States