The £40m sale of Alliance Trust Savings to fellow flat-fee platform Interactive Investor last week has opened a new opportunity for expansion in the advice space.
The execution broker does not currently offer advice and its intentions in the advised market are unknown, while the ATS platform it will acquire is split between direct-to-consumer and advised offerings.
The deal will take the combined platform to £35bn in assets under administration and a total of around 400,000 customers.
Platforum head Jeremy Fawcett says ATS’s offering will always have a keen client base as the only platform to offer a fixed-price model.
The platform has been bogged down by a host of issues since 2015, notably its profitability concerns.
Fawcett says: “The platform was barely profitable and has struggled with its technology upgrade, and this has caused some reputation loss among financial advisers.”
ATS suffered a £5.2m loss in 2015 after its acquisition of Brewin Dolphin’s execution-only stockbroking business for £14m. It returned to profit with £1.2m in 2016 thanks to the completion of its acquisition of Stocktrade, which boosted account numbers by 31 per cent.
Last year, the platform was ordered to pay £6,000 in compensation for mishandling the transfer of a client’s dealing account and Sipp from another provider. The platform also topped the FCA’s pension complaints list for 2017.
The added scale of Interactive Investor could give the ATS platform better long-term options and much-needed funds.
Interactive Investor has the option to now shift its market sector or look to acquisitions to build a more integrated business offering for existing clients on both sides.
Candid Financial Advice director Justin Modray says advice firms that are using the ATS platform are “watching developments like hawks”.
He says a “significant” percentage of Candid’s £100m in client money is held on the platform.
Modray says: “The fixed-fee model suits our low-cost ‘bionic’ approach to advice but the key question now is whether Interactive Investor will retain adviser support long-term and can successfully clear up ATS’s fragmented platform systems.”
The FCA has already flagged issues around transparency and pricing complexity for D2C investment platforms as part of a proposal of changes that it outlined in the Investment Platforms Market Study last year.
With ATS and Interactive Investor now one of the largest players in the industry, the regulator is expected to be keeping a close eye on its movements.
Fawcett says: “It is still less than half the size of Hargreaves Lansdown, but Interactive Investor’s newly-acquired assets make it almost double the size of its next closest D2C rival, Fidelity.”
On the integration front, Modray says Interactive Investor is unlikely to take on the time and expense commitment of adding an adviser functionality to its platform.
The complexity of ATS’s current set-up might hinder plans to integrate the two smoothly.
ATS currently uses three different platform systems that may or may not be rolled over under Interactive Investor.
Activebank is used for most D2C and adviser clients, while the Figaro system is still being used for ex-Stocktrade D2C clients.
While there was talk in June that the Figaro system would be dropped, ATS is still using GBST’s Composer technology for some adviser clients as well.
Modray says that the confusion between the three hinders the scalability of advice businesses that are using ATS.
He says: “This has caused many service issues and so we are actively considering alternatives but hope ATS remains an option if Interactive Investor firmly commits to the advice market and can fix the technology woes.”
If Interactive Investor chooses to stay in the advice market, Modray adds that retaining either the Activebank or Composer systems is logical but would be difficult.
He says: “Activebank is long in the tooth and merging in to Composer is likely to be troublesome because ATS is yet to achieve this after years of trying.”
The situation has drawn some parallels with the difficult integration between Aegon and Cofunds this year.
After a multitude of problems, Aegon announced last month that it was bringing management consultancy KPMG on board to support an £8bn replatforming project that began with Aegon’s purchase of the Cofunds retail and institutional platforms two years ago.
Modray says the immediate unanswered fear for ATS’s clients is that Interactive Investor could simply sell on adviser client books.
He says: “Everyone would welcome initial reassurance backed up by a positive plan of action.
“On the surface the acquisition looks positive [but] whatever Interactive Investor decides, I doubt it will be plain sailing.
“If they can overcome such hurdles, they’ll likely have a compelling adviser platform on their hands.”