Several of the adviser-led platforms now have quite brilliant reporting functionality. Asset allocation, cashflows, tax reporting, market commentary – they are vying with each other to generate systems that can handle the entire client management and reporting function for advisers.
I can’t help being impressed. But I remain uneasy about aspects of the business model implicit in the use of platforms to manage clients.
Some advisers will say they have segmented their clients and have chosen a platform to deliver a specified service for a given segment: Platform A for gold and Platform B for silver, and so forth. Or, thanks to the DFM-on-platform bubble, both gold and silver services with different investment content delivered via the same platform.
One worry I have about this model is that many of the advisers who have adopted it seem concerned primarily with the value they expect this to embed in their business.
Clearly, you can make the case that if you have a set of client assets on one wrap you can value the advice fee income stream and rip this segment out of the adviser business without, apparently, any difficulty. But isn’t that a bankassurer model? Surely the wealth manager/IFA proposition is about the personal client relationship and service.These two don’t quite triangulate on a six times wrap revenue sale target.
Fundamentally, how different is the all-on-wrap model from the old-world commitment advisers used to make to a few product providers?
The counter-argument is that adviser firms that built their own system in the past usually spent ludicrous sums of money for rubbish systems. Today they have learnt better and, as far as I know, most medium-sized advisory or wealth manager firms use white-label versions of mainstream platforms.
But if you anticipate your high net worth clients holding a wider variety of assets in future – for example EIS and VCTs – you may find you can assemble better data on these holdings through your back-office system for delivery to clients. And the first DFM to deliver line-by-line portfolio reporting on ‘unitised DFM’ multi-asset Oeics via mainstream back-office systems (GAM, Close Brothers?) will present a serious threat to platforms.
At present I still see value in delivering as much client reporting functionality as possible via the adviser’s back-office system because you will always have more flexibility delivering your service this way.
For the platforms, there really isn’t that much risk. Assets will be sticky and advisers won’t want to move. So the downward trend in fees will be slower than is warranted by the precipitate fall in technology costs.
Adviser businesses that are wholesale adopters of wrap are choosing to be passengers on someone else’s ship. Today it may look like an America’s Cup yacht crewed by bold young athletes but in the not too distant future it is going to look more like a Korean supertanker captained by a middle-aged box of chips.
Chris Gilchrist is director of Fiveways Financial Planning, a contributing author to Taxbriefs Advantage and edits The IRS Report