View more on these topics

Platforms, profits and their struggle to survive


Concerns about platform profitability are expected to continue as the industry awaits evidence that 2016’s big-name mergers have been a success.

Assessing the state of the platform market, Money Marketing looks at whether it will continue to contract through consolidation and how platforms can look to grow business in the coming year.

More mergers?

Platform consolidation activity was dominated by two large mergers in 2016, but commentators are unsure as to whether this trend will continue.

Aegon’s £140m purchase of Cofunds in August makes it the largest platform business in the market, while Standard Life’s acquisition of Elevate takes the combined business’s market share of assets under administration to 10 per cent, putting it on a par with Old Mutual Wealth according to third-quarter data from Platforum.

However, the likelihood of future acquisitions depends on evidence that those deals have been a success, and how many willing sellers are left in the market.

Threesixty managing director Phil Young says: “The acquisitions so far have both been opportunistic. Neither Standard Life nor Aegon sat there and said they wanted to acquire, it was just that Elevate and Cofunds happened to come up on the market for sale.”

Standard Life and Aegon are both working on “integration”, which includes work to update technology (Aegon’s technology upgrade is costing £80m), as well as setting up
adviser working groups around service and how the platform functions.

Aegon says 750 Cofunds staff have moved across after the acquisition and there are no job losses planned as a result of the integration.

Aegon chief distribution and marketing officer Mark Till says: “When Aegon and Cofunds announced the purchase of the business we talked about the way we thought we could primarily save costs in the business through technology and removing the duplicate software licences.”

There are also operational changes taking place at Standard Life as its customer base grows from 160,000 to 350,000 after the acquisition.

Standard Life adviser and wealth manager propositions head David Tiller says 44 people left Axa Portfolio Services, under which Axa’s wealth arm sits, as part of a review before the acquisition was completed.

Competitors are watching cautiously to see how these deals play out.

Ascentric managing director Jon Taylor says: “The data and information from those [deals] and the experience of the acquirer will educate people on whether platform acquisitions are a good thing or not.”

He says: “It will take quite a long time, if ever, to drive profit from those acquisitions. The estimates in terms of costs of merging the business is probably underestimated and the complexity of integrating those businesses is extremely high. Therefore, the investment will be high and the timescales will be long.”


Rather than consolidation taking place this year, Altus Consulting senior consultant Ben Hammond thinks there could be initial public offerings or investment in platforms from private equity firms.

Transact has signalled it is eyeing an IPO in the first half of 2018 and Hammond says Novia could be another contender, given its size and modern technology.

In a note to investors in December, Transact says it worked with its corporate adviser Evercore throughout 2016 towards an IPO.

Profitability pains to continue

Mergers and acquisitions is just one example of a trend where businesses are looking elsewhere in the value chain to inc-rease margin and ease pressure on profits.

A 2016 report from consultancy group Finalytiq showed the platform market made a combined pre-tax loss of £18.73m in 2015. This was a £26m decline on the combined pre-tax profit of £7m in 2014. The data is the most recent full-year financial information available until businesses report their 2016 fourth-quarter results in the coming months.

Of the 26 platforms analysed in the report, 10 posted a pre-tax loss in 2015: Aviva Wrap, Elevate, Old Mutual Wealth, Aegon, Alliance Trust Savings, Ascentric, Avalon, Platform One, Praemium and Zurich.

Taylor predicts the market’s profits will not improve this year as the margins on platforms come under continued pressure.

platformboxHe says: “The margins across the whole of the value chain – from the adviser, through any discretionary management onto a platform, and then through to fund management – there is only one direction that price pressure will go and that is to push prices down.

“Therefore, if you are in the middle of that value chain, which is where platforms are, there isn’t going to be a natural opportunity for increased profitability.”

Scaling up

For Young, there are two distinct strategies at play in the platform market: businesses focused on pure scale, and businesses focused on controlling their cost base.

He says: “Part of the reason why some of them are focused on pure scale is because they are interested in cross-selling products but the platform is not viewed as being the proposition that is profit-generating for them.

“It is almost the means to an end. It is a facilitator and enabler of selling other products, such as a model portfolio service or a fund.”

Taylor agrees that the trend towards businesses owning platforms and distribution, as well as fund managers integrating with platforms, is less about focusing on the profitability of the platform than pushing up the margin on the offering as a whole.

Aegon is an example of a platform focused on scale, as evidenced by its acquisition of Cofunds. However, its intention is for the platform to generate 80 per cent to 90 per cent of the business’s profits in three to five years as it shifts away from annuities.

Till is clear the company’s view is that scale is increasingly important in the platform market.

Till says: “We are on record as saying for a business to run sustainably and make a profit for the shareholders, and create value for its users, a platform is going to need to have £60bn or so of assets.

“The reason behind that is not only does scale enable you to make a profit, but it enables you to keep investing in the business to adapt to new regulation, to invest in the proposition to improve the user experience.”

Young says a loss of control over cost base is largely behind platforms’ struggles with profit, including over-resourcing.

He says: “Some of the platforms are part of what was formerly an insurance company so they have the resources around. If you look at a completely greenfield site where you are building a platform from scratch, they have got a few hundred staff rather than several thousand because their approach is you only employ an extra body when you need an extra body.”

Profitability also has an impact on adviser due diligence, with instability posing a potential challenge to attracting advisers to the platform.

Hammond says: “Because advisers have to do their due diligence, they have to make sure they get the best deal for their customers and profitability and replatforming are going to play into that process. It is a hard balance of making a big success of the company and giving a better service to customers. The cost of replatforming clients from one platform to another can be quite a lot for an adviser so unless it is absolutely horrendous they will stick with who they are used to until they come out the other end.”

The fight over fees

Platform fees are another area to watch in 2017 after Alliance Trust Savings – which operates on a flat-rate fee basis – and Elevate announced some fees would increase at the end of last year.

Standard Life said new Elevate customers would face an average increase of 0.04 per cent in portfolio charges to support platform development. Charges for existing customers will remain unchanged, while the number of discounted fund deals will increase from 350
to 440.

ATS has also announced a fee overhaul for its direct and advised businesses from February, including increasing its “inclusive” account charges for the first time since 2014. The business says the inclusive fees are changing to reflect the cost of providing the service.

Hammond thinks the fee increases “look worse” than they are, particularly in the case of ATS, where customers should expect fixed rate fees to increase as other costs go up as well.

He says: “It is different to other  platforms who charge basis points on assets under administration. They are hoping to grow the AUA and the markets are shown to move up in the long term so their increasing costs are covered by that increase.”

Taylor says Ascentric is reviewing its pricing structure, but not with a view to raising prices.

He says: “You are getting much more transparency now with pricing from fund managers for advisers and you have to drive that through platforms as well. We are looking at our pricing this year with a view of how simple we can make this. We will not be making any news about pushing up prices in order to push up profit.”

Aegon, meanwhile, has promised not to increase prices for Aegon Retirement Choices clients or Cofunds users.

Advisers will be on the lookout to see all these promises delivered.

Expert View 
Platforum director of research Heather Hopkins


At Platforum we think there will be consolidation of assets to a small number of platforms in the next five years. Three-quarters of assets will sit on four platforms by 2022. As at Q3 2016, 44 per cent of assets were on four platforms. The share of assets on the biggest platforms has been declining steadily over the past eight years. But that is set to change.

While M&A activity will drive some of this consolidation, the more important driver will be customer choice. We have seen customers drive consolidation onto a handful of technology platforms (Google, Apple, Facebook and Amazon in particular).

I agree Google is different, but the parallel we draw is consolidation in the technology platform market has been driven by customer choice not M&A. While there will be some M&A activity the most important shift of assets will be driven by customer choice (adviser and investor).

Platforms are still relatively new phenomena. We have seen a proliferation of platforms in recent years. As the market matures a few players will gain scale and it will become harder and harder for smaller platforms to compete.

Scale players will lower fees and offer better service. They will use their scale to negotiate preferential deals with fund groups – further driving down the cost of investing. We acknowledge it is not easy to move money across platforms, but we think that will get easier.

Of course this is all dependent on the shape and structure of the advisory market.

If we see mass consolidation to a few vertically integrated firms, the platform market will still consolidate but will look very different from one where platforms are supporting a diverse and healthy independent adviser market.

If we see a thriving market of small to mid-size advisory firms, scale platforms will be even more important as they will allow advisers to exert pricing pressure on other parts of the supply chain.

A fragmented market – the one we are in now – affords very little power to the customer.



Crunching the numbers on Elevate’s repricing

Standard Life revealed exactly how it would charge new and existing Elevate users this morning. Having completed the platform purchase off Axa in November, Standard Life said existing users would pay exactly the same, but costs for new customers would be changed. Here’s what the new prices look like: New customers will face an average […]

Profile: Novia’s Bill Vasilieff talks turning a profit and the future of platforms

The secret behind Novia’s success lies in its technology and large discretionary fund management range, according to chief executive Bill Vasilieff. But the path to this point has been far from smooth. In 2001, Vasilieff worked on establishing the Selestia platform. Six years later, after it was acquired by Old Mutual to be merged with Skandia’s […]


Platform boss calls for FCA clarity on bulk transfers

AJ Bell has called on the FCA to provide clarity on the suitability process advisers should follow when transferring clients in bulk to another platform. Speaking to Money Marketing, chief executive Andy Bell says many advisers are reviewing the platforms they use as a result of the major replatforming exercises under way across the platform […]

Treasury looks to address advice gap

By Jamie Clark, Business Development Manager, Royal London Hot on the heels of consultations on tax relief and pension transfers and early-exit charges comes a new investigation into the advice gap, and how this can be bridged. Ever since the new pensions freedoms were introduced, concerns have been raised about how people can get access […]

Tax-free gains? That can’t be right, can it?

When he was Chancellor of the Exchequer, George Osborne made several changes to the way in which income is taxed. Personal allowances were increased significantly above the rate of inflation; a starting rate band was introduced for savings income and, with effect from 6 April 2015, this was assessed at 0 per cent. In addition, […]


News and expert analysis straight to your inbox

Sign up


There are 5 comments at the moment, we would love to hear your opinion too.

  1. This is not new, its a problem that has been brewing for a number of years now.

    An acquisition is not a long term solution ! its a short term fix

    From the conversations I have had with platforms, is that, they suffer the same kind of problems we do, everything coming from parliament and the regulator is centered on cost and charging, there is little to no time to plan forward as the goal posts change so erratically and cost just snowballs with no real constraints, so forget business planning for the next 5/10 years you now have to be looking at 6 to 12 months
    An you just have to forget funding for innovation….. whats the point ?
    Prediction for the next 5 years; buckle up buttercup it will get worse !

  2. The failing of platforms is they behave like product providers and are regulated like product providers.

    Compare this to the profitable technology companies who supply our sector are back-office, research software and similar providers, i.e. they provide technology that allows the IFA to self-serve. So long as platforms try to control everything they will be over loaded with work and employee too many people. They need to focus on custody and find a way of letting go of the day to day management of client data and allow IFAs more control of that. That’s exactly what happens with back-office systems, for example. Do not fear, it’s not in the IFAs interest to mess the data up as they reply on it to look after their clients and run their businesses efficiently.

    The fact is that platform providers are effectively double keying everything the IFA does on their back-office and it’s very costly. When the platform providers become more like back-office / technology providers, and this is recognised by our regulators, the sooner they will become profitable. They need to be much leaner when it comes to the numbers of people they need to emply and their focus needs to be to empower the IFAs and allow the technology to manage the custody and trading. A simple example is that too many platforms still need paper forms filled out when the IFA (or restricted adviser) could input the information required.

    When platforms get this they could even replace back-office systems with the advantage that they hold the custody and the dealing is executed by them. It does seem silly that we need both (platforms and back-offices) and at the end of the day having these two layers creates extra cost and extra complcation.

    At this point the charging model needs to change too and IFAs pay for the platform in a similar way they do for their back-office and customers pay for the wrappers they use within the platform, in the same way Alliance Trust do, rather than bps charges.

    The platform provider who grasps the nettle and achieves this will be very successful and in the long-term provide the capability for IFAs who use the sysytem in common to merge, buy and sell seemlessly – driving up values for everyone, especialy the IFA firms themselves.

    This was the vision I had when I founded IFA Wrap Ltd which become funds direct / ascentric but no one listened – the business became flooded by the provider mentality that just said it couldn’t be done. Years later they’re still haemorrhage money and their largely Antipodean software suppliers are laughing all the way to the bank.

  3. P.S. just read that back to myself. Please forgive the typos!

  4. The focus for all platforms should be profitability and financial security. Driving down charges may be good for consumers but surely not to the point where no one is making a profit and in turn threatening the security of client assets.

    To read that platforms are aware that they are loss making but reliant on the deep pockets of parent companies strikes me as naive.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm