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Looking under the bonnet at advisers’ use of platforms

Investment Trends analyst Recep III Peker says competition among platforms is increasing as the market matures

Platform usage remains strong – advisers invested 69 per cent of their new client flows via platforms in the year to August 2012. This has reduced slightly from 71 per cent in 2011 but is a significant increase from 60 per cent in 2010. The high use of platforms is to be expected, given the large number of benefits advisers perceive them to provide to both their clients and their businesses.

When asked to nominate the single most important benefit of platforms, the most comment reason given by advisers was simpler administration among 29 per cent of advisers. This was followed by improved client proposition at 18 per cent and improved client understanding and satisfaction at 14 per cent.

Against a backdrop of high investor fear levels, adviser expectation that the FTSE will return only 3 per cent over the next 12 months and Google search volumes for “financial advice” half what it was five years ago, it is no wonder that 58 per cent of advisers describe the current business environment as challenging. But, inspiringly, advisers are quite optimistic too; 74 per cent also say that it is positive and improving, with opportunities for well-run businesses and a chance to add great value to clients.

Advisers’ key concerns currently relate to the cost of regulation, new client acquisition and making clients aware of their value proposition, with 51 per cent, 44 per cent and 41 per cent of advisers respectively giving these as an area of concern, and it is the latter that advisers feel platforms help them with.

However, there is still room for platforms to help. Fifty-nine per cent of advisers said there were tools or support that their platform could provide them to help with the implementation of the reforms.

Against all this, 51 per cent of advisers said their business was more profitable this year than last year and a further 32 per cent said profits were roughly the same.

Those who have increased their profitability are typically further ahead of the curve on many of the transitions currently washing through the industry.

Among other things, they tend to be more ready for the RDR and are more prominent users of platforms and other planning technology.

Platforms are likely to continue playing a prominent role in advisers’ businesses.Advisers expect they will

be investing 78 per cent of all new client funds via platforms by 2015.

The average adviser uses 2.2 platforms each, unchanged from 2011. However, under the surface, fewer advisers are using only one platform and fewer advisers are using more than two platforms.

Instead, the proportion using just two platforms is increasing fast. In 2012, 59 per cent said they were using two platforms, up from 48 per cent in 2011 and 35 per cent in 2010.

Despite this, the “80/20 rule” persists – advisers invest 77 per cent of their platform flows via their most-used or “primary” platform and the rest via their secondary and other platforms. This rate is unchanged from 2011 and means that it is still critical to be an adviser’s primary platform.

The top five platforms by primary relationships in 2012 were the same as 2011: Skandia, Cofunds, FundsNetwork, Transact and Standard Life Wrap.

However, the platform market is becoming more competitive as market shares dilute. The top five platforms held 76 per cent of primary relationships in 2010, 73 per cent in 2011 and now hold just 66 per cent of primary relationships.

In the last year, Elevate, Nucleus, Aviva Wrap and True Potential have all seen substantial improvements in their market shares.

Their gains are partly attributed to the high level of switching that is prevalent in the platform industry.

In the year to August 2012, 20 per cent of advisers said they stopped placing new client funds on at least one platform in the last 12 months, steady from 21 per cent in the previous study.

The switching rate relative to market share tends to be higher among platforms with low satisfaction and lower among platforms with high satisfaction, meaning it is critical to keep advisers happy for retention purposes.

Overall, the platform industry rates well in terms of satisfaction. Seventy-six per cent of advisers rate the platforms they use as good or very good, which is steady from last year although slightly more are giving a rating of very good.

The top four platforms by satisfaction are the same as 2011 – Transact, Nucleus, Novia and Skandia.

A notable change in adviser perceptions is that Transact has now overtaken Skandia to be the platform most widely perceived to be “the best”.

While platforms are rated well overall, at an industry level, there are still many service elements where platforms are typically rated below ‘good’, with 19 out of 28 elements falling below this standard.

This provides opportunities for platform providers to differentiate their offering by focusing on being really good in some of these areas and attracting disgruntled advisers from competitors.

Click here for the full 32 page report

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