Leader: Platforms and the ‘too big to fail’ issue

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

How far does adviser due diligence have to go? Beyond any product recommendation, there are the providers to consider, plus the platforms everything is running off. But what about the technology providers powering the platforms too?

The platform market, and in particular the tech providers behind them, are fast becoming too big to fail. With the “big four” set to be powering over 80 per cent of platform assets over the next two years, it begs the question as to what contingencies firms are putting in place should a power outage, or worse, a tech firm failure, create a domino effect along the product chain.

This is not about scaremongering (we have enough of that on Brexit as it is). But as the platform market squashes and shrinks, the technology firms underpinning it all grow ever fatter. It is interesting that following the Standard Life/Elevate deal, with both platforms powered by FNZ, it emerges that Standard Life has secured “step in rights” to run its FNZ-led services should the metaphorical lights go out.

The FCA is also said to be concerned about one particular provider’s concentration risk (explicitly, a risk to financial stability) given its dominance in the market and the level of assets it is responsible for, albeit on the fund administration rather than platform custody side. Of course, we are by no means looking at a doomsday scenario for platform tech providers right now. But it is a situation for advisers to monitor, especially given the FCA’s increasing focus on advice suitability and platform due diligence.

“Advisers will have the vague hope that if something goes wrong, there is a plan B, or someone with deep pockets”

On Standard Life’s acquisition of Elevate specifically, the more immediate issue for advisers is  how the transition will be managed for Elevate users, and how the additional platform will be integrated into the Standard Life business.

But with scant detail on the practicalities, the gossip around the deal has been plugging the gaps. A toppy valuation of £250m for Elevate looks wildly off, with Money Marketing sources putting it at more like £40m to £50m. This figure will set the benchmark for the remaining platform deals that are yet to get away, including a likely imminent deal between Aegon and Cofunds.

For now, the spotlight is on FNZ, and how it will manage the combined business of Standard Life, Elevate, Aviva’s adviser platform and some rumoured deals with the banks.

Advisers will have to watch how the tech providers cope from a distance, with the vague hope that should the worse happen, there is a plan B. Or at the very least, someone standing behind them with some deep pockets.

Natalie Holt is editor of Money Marketing. Follow her on Twitter: @Natalie_Holt_MM