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Advised platforms missing out on DB bonanza

Boosting the slow rate of growth of the average pot size on advised platforms requires an “extraordinary and sustained” increase in defined benefit transfers, according to The Lang Cat.

In its seventh annual platform guide the consultancy says most platforms have an average client pot size ranging from £100,000 to £200,000.

It points out the average case size has not grown much in the last two years with growth of around 8 per cent over the period.

This is despite a steep rise in the number of people transferring out of defined benefit pension schemes. According to a freedom of information request from the Financial Times to the FCA, the amount of money transferred out of defined benefit pensions in 2017 more than doubled to £20.8bn.

The Lang Cat figures show money from DB transfers has not flowed into platforms and The Lang Cat says they largely remain a place for the averagely affluent as very wealthy clients go elsewhere.

Platforms with the richest clients include James Hay and Seven Investment Management while Aegon Retirement Choices, Novia and True Potential have average client pot sizes at or below £100,000.

The Lang Cat principal Mark Polson says there are a number of reasons why money has not been transferred to advised platforms.

People that want their money to be managed by providers with conservative funds have put it into low volatility propositions at Royal London and Prudential, he says.

Meanwhile a smaller number of investors who have transferred out want to manage the money themselves.

Here an adviser transfers the client onto an advised platform and then the client transfers their money to a Sipp or other vehicle so they can manage it themselves.

Both these actions have resulted in the average client pot size on advised platforms remaining relatively small and would require a massive spike in DB transfers to grow the average pot size.

Polson says: “It would take something sustained and extraordinary to move the small average client size in the market as a whole. I am sure some individual platforms have seen a higher average this year but it is not enough to move the needle on the whole book. The arithmetic means client pot sizes will remain small.”

The Lang Cat also says platforms have seen assets rise by a compound annual growth rate of 19 per cent over the last six years, from £141bn in Q3 2012 to £400bn in Q3 2018.

It also estimates assets on advised platforms will increase by 15 per cent per year rising from £400bn today to £818bn in 2023.

Polson adds: “Despite the potential headwinds created by ongoing regulatory requirements and the economic uncertainty of Brexit and other global political developments, we still believe the sector is set fair for some time to come in terms of its opportunities.”

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