In my last instalment, I predicted five main types of platform businesses in the future – in fact they have already started to emerge:
- Utility platforms
- Value add adviser platforms
- Platform BPO providers
- D2C platforms
In this instalment, I would like to have a go at answering some fundamental questions that people have lobbed in my direction of late. Feel free to add to the conversation.
What is the future of platform pricing? The easy prediction would be “downwards”. The more useful expectation is that I believe that platform pricing will start to reflect the actual costs of delivery and we will begin to see more platforms charging account establishment fees and transaction fees rather than base the majority of their revenue on a slice of AUA.
More pounds, fewer bps. Alliance Trust Savings has been doing this for years and many more may be forced to follow suit. I wonder how many ‘retail’ platforms will be able to withstand such a fundamental shift in their revenue model …
Why does a financial planning or wealth management business need more than one platform? Did the FSA really command advisers to use more than one platform, or is this simply the industry’s short-hand interpretation of the often unclear and seemingly contradictory way that the regulator expresses itself?
I believe the regulator simply wants to ensure that any piece of advice and subsequent investment is suitable for each and every client.
This does not mean that advisers must use multiple platforms. It simply means that advisers can’t shoe-horn every client into a single solution.
Let me put this another way – why on Earth would an advice business need more than one utility platform? It doesn’t. As Towry chief executive Andrew Fisher has been pointing out for years, if the platform is simply a trading mechanism (i.e. a utility), surely you only need one. As a business, you don’t have more than one electricity supplier.
A growing number of CEOs of large financial planning and wealth firms are moving to the situation where their proposition is powered by one core utility platform. Of course, those who have an adviser technology system at the heart of their proposition have the greatest flexibility of all. They can even take on a new adviser knowing that they can connect to whatever platform, or platforms, they are currently using. That’s the beauty of the utility platform model.
But surely the utility platform model may not be right for every firm? Agree. Some firms will value the services and personal guidance that the value-add retail platforms can provide, whether this is in the form of investment tools, model portfolios, assistance with transferring assets, or just general business development guidance. How much more will retail platforms be able to charge for these extra services?
Enough, I suspect, for those who excel at customer service and possess a genuine sense of community to build highly successful businesses. But they must add genuine value to advisers. My rule of thumb is … if they genuinely help advisers to be more successful, they will thrive.
Should advisers fear platforms providing D2C services? No. Quite the opposite. I would actively look for a partner with a D2C service I could white-label – but in a way that you could control. I would do this not just to provide a service to those parts of my client base that I may not be able to afford to service face-to-face, but for any client who may wish to access, or even trade, online. I think it was Platforum who revealed that 60 per cent of investors want advice and the ability to do some of the investing themselves.
To me, this means that if you don’t offer this sort of service, 60 per cent of your clients will investing themselves anyway – and you may not even know about it.
When is a platform not a platform? All lines in this industry will continue to blur at an increasing pace. Is Skandia a life company, a platform or an investment company? The answer is “Yes”. Is Nucleus a platform or a community? It’s both. Ditto for Transact. Standard Life is obviously both a platform and an asset manager.
Sesame, Intrinsic and Openwork are on their way to becoming all three – networks, platform providers and asset managers. Many lifecos have made the first tentative move into distribution and some retail platforms may even do the same. In the end, the power lies in having access to, and interaction with, customers (defined in my book as “advisers” if you are a platform business and obviously “end clients” if you are an adviser).
With today’s technology at their disposal, the organisation with the customer relationship has the ability to move in whichever direction it desires.
As always, it comes down to influence over the end customer. Which simple fact is why the advice firm holds all the cards post-RDR, especially as more and more organisations begin to look at platforms as utilities.
Campbell Macpherson is managing director of Campbell Macpherson & Associates. Previously, he has had executive roles at Zurich, Openwork and Sesame