As Zurich throws its hat into the wrap race, the number of platforms has risen to 26 – and counting. Debate continues about how many platforms the market can sustain but it important to start to think about platforms in a different way.
The discussion has always focused on ownership. Is it a life company, an independent or a fund manager platform? This classification is, I would argue, mired in the past.
Show me one IFA who runs the same business as his neighbour – it doesn’t work like that. Some have discretionary permissions, others don’t, some have swallowed the Dimensional pill, others are ETF and passive fans, for others it is all about Adviser Office.
As the platform market grows, we think it is incumbent on the platforms to get better at defining what they do and who they do it well for.
Before looking at individual functionality, we think it important to understand the component parts of your platform. There is a core IT engine, fund administration, tax wrappers, investments, tools, a web portal and integration with adviser software. Who is in the team that is bringing your platform to market?
Some platforms do the whole shooting match – Fidelity and Transact are examples. Others, such as Novia, outsource the IT. Nucleus outsources the IT and fund administration. Viewed in this way, the platform world takes on a different shape. Let’s explore this idea.
Other industries talk about the holy grail of the “vertical stack”. Simon Andrews, the engaging founder of mobile agency Addictive, writes about this.
“Each of Google, Amazon, Facebook and Apple is trying to build a vertical stack where they control every aspect. Apple has been in the vanguard, launching great hardware and then developing an ecology (and the software) that enables them to capture the value of the content consumed using that hardware, so selling music, books, movies, games and apps becomes a very profitable way of enticing people to buy new hardware that lets them use the content they have bought.
Of course, all these eyeballs inside an Apple ecology worries Google, as they are the dominant monetiser of eyeballs through search, so it has started to build its vertical stack. The key difference is that it started with the software (Android) before recognising they needed to be involved in the hardware too – buying Motorola.
Recently, Amazon went a step further in building its vertical stack. It has built on the huge success of the Kindle and launched the Fire. It is half the price of the iPad and does what most people use the iPad for. Game on. One reason for the low pricing is that Amazon expects to make money from content sales to subsidise the devices.
In our platform world, those who do everything are the Apples of this analogy. They are masters of their own destiny with more flexibility to develop and change but they also carry a cost burden unable to be shared. As margin pressure hits, this is on area where platforms will feel the burn.
At the other extreme, our Googles are platforms such as True Potential. These newer platforms have been built fit for purpose and are not an extension of a life company platform or a transfer agency type business. SEI has been key in facilitating this market – they offer those with web capability the chance to outsource the infrastructure.
The Amazons are, to my mind, the most interesting category in terms of future change. These are platforms with something to cross-sell. With opportunities to make money from products or from investment management, it is not inconceivable that these platforms will give away their “Kindles” for nothing or at a low fixed fee.
At our conference last week, Skandia’s Nick Dixon expressed a view that the market could sustain eight to 10 players. We think that is overly pessimistic (or maybe optimistic in his case!)
As illustrated in our chart above, it is important to distinguish between those core IT platforms and the platform propositions at what is typically referred to as the front end.
We anticipate some change and activity in the core IT platform players and think that six or seven feels about right. As for the platform propositions these can support, well, there will be XO platforms, workplace platforms, those to support restricted advice and independent advice, discretionary management platforms…the list goes on. Some of these new-look businesses will be primarily marketing businesses servicing their niche.
We think this distinction helps explain the disparity in predictions about how many platforms the market can sustain. It is inevitable there will some some mergers, acquisitions, closures and disposals along the way but we have not seen the end of new platform launches and will not do for some time.
Holly Mackay is managing director of The Platforum