The Big Interview: Parmenion boss on how low platform fees can go

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Martin Jennings is not one for fancy lunches. So it was over a couple of flat whites at a small Pret a Manger in the City that I met the recently appointed chief executive of Parmenion and head of digital for Aberdeen Asset Management.

Jennings has spent 15 years in the platform market. He was part of the team that set up the wrap at Elevate; a business that was designed to be vertically integrated.

He says: “The plan was always that platform margins would come to zero. They won’t, but we planned for it.” And yes, Jennings is referring to margins, not fees.

“I don’t think fees will go to zero. The platform has to wash its face.”

If platform margins go to zero, vertical integration becomes more important. “Logic would suggest there is value in vertical integration,” he says.

By this he means owning distribution along with another part of the value chain. However, he questions whether firms will build enterprise value through it.

“I don’t think fees will go to zero. The platform has to wash its face.”

Technology tests

We tick off the usual suspects: SJP, Hargreaves, Intrinsic. “The ones making money are vertically integrated.” He adds these firms married a culture of distribution with a product culture, and it is tougher to do it the other way around. “It looks good on paper, but it’s hard.”

Axa outsourced the back-end technology for Elevate to FNZ. “We watched what it did at Standard Life. The model worked and the commercials worked. It gave us speed to market.”

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Jennings left Axa to head FNZ’s business in Australia, returning to run the UK business two years ago.

Parmenion runs on proprietary technology. The business is proud of this fact and sees it as a strategic differentiator. I ask Jennings how he squares it.

“It’s a bit ‘poacher-to-game keeper’,” he says. But in the case of Parmenion, he explains, there is no need for speed to market.

“We have a platform with £3bn in assets; up 50 per cent last year. We are not a start up.

“If we’d started to build the tech at Elevate it would have taken too long to get to market. One of the successes of the business that [Parmenion founder] Richard Mein built is that the technology is not outsourced.”

The conversation turns to robo-advice. Jennings is optimistic about the role of what he calls “bionic advice”, with better technology bringing down the cost of investing.

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Parmenion is optomistic about robo-advice after running its own proprietary technology

A “sub 1 world”

He predicts a “sub 1 per cent world” for direct but does think advised will remain at the 2 per cent mark.

“Existing distribution will work out how to segment their client base to adopt technology. Advisers won’t lose out to bionic advice. They will work out how to offer a segmented solution.”

He points to the fact there is more money in Europe in cash than in funds – something that frustrates him. However, he believes robo-advice will help bridge this gap.

“Why aren’t more people investing ‘lazy cash’ into mid- to long-term investments? People are adopting pension freedoms by putting money into a bank account and earning zero interest. That can’t be right. As an industry we need to find a way to address that.”

The other big challenge for the industry is around debt. Jennings believes advisers need to get better at managing both sides of the balance sheet. “If you help manage debt, you own the relationship with the customer.”

As he points out, when we talk about money with friends and family, we start with the house. We talk about mortgages, then where we like to holiday and school fees. Investments come after all that. And advice jumps to point five. For Jennings, we need a much more holistic approach.

“Platforms are too investment focused; they aren’t holistic,” he says. However, he recognises that this innovation does not need to come from the platform. It can either be a platform or a digital consolidation layer.”

Heather Hopkins is head of Platforum. platforum_rgb

She can be reached at heather@platforum.co.uk

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Sub 1% world for direct is no prediction its already here and as for sub 2% for advised none of my clients have total costs (including my fees) of near that level and some are sub 1% on an advised basis already.

  2. 2% including underlying investment costs

  3. It will be interesting to see what Vanguard will do to advised and non-advised pricing.

  4. I would not be surprised to see Vanguard with zero platform charges to hold their own funds/ETF’s, perhaps trading costs, possibly nominal fixed charges. Whatever it turns out to be it ain’t gonna be much. Many retail clients will stop using D2C platforms and I’m sure some adviser firms will be reviewing their platform proposition, I know I will be.

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