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Mariam Pourshoushtari: The reasons behind platform switching inertia

Many advisers consider the cost and effort of transferring assets to outweigh the savings for clients

Advisers choose to use some platforms over others for a range of reasons and may well change where they place new business from time to time, but it takes quite a bit of frustration to lead advisers to transfer clients from one to another, as our research indicates.

Adviser firms’ due diligence processes in selecting platforms vary. Larger firms tend to review the market on an annual basis, whereas smaller businesses are likely to take a more ad hoc approach to selection.

Most firms we surveyed have a number of preferred platforms that their advisers are encouraged to use – but most do not have strictly enforced panels.

Even where firms are prescriptive about the platforms they want their advisers to use, they generally make exceptions for those with clients who already hold investments on other platforms off the list. It is mostly only a few large restricted nationals that require clients to move their investments on to their designated platforms.

Individual advisers then say they typically review the suitability of a platform at each client’s annual review. They might recommend switching platforms, but mostly they do not.

Suitability
This confirms the findings of the FCA Investment Platforms Market Study, which says that the main benchmark is whether a platform “continues to be suitable, as opposed to whether a different platform might provide a more optimal outcome for the client”.

Advisers are more likely to switch a platform for clients only where there is a “compelling” reason to, like products being unavailable or it not having some functionality necessary for the client’s financial plan. Advisers tell us they tend to transfer only when there is convincing justification of unsuitability on a case-by-case basis. These are infrequent and bulk transfers are rarer still. Even on an individual basis, advisers proceed with caution, moving only a handful of clients at a time in order to juggle the extra workload these transfers place on top of business as usual.

So it takes quite a lot to provoke advisers to switch platforms for clients. Unfortunately, there have been more reasons than usual to switch recently – the culprit often being the consequences of replatforming.

As the chart above shows, poor service has risen to become the top reason why advisers transfer clients’ assets away from a platform.

Falling service standards have always featured high in the reasons for advisers transferring assets, but they have now replaced last year’s focus on lower fees as the main reason for switching.

Many advisers affected by replatforming tell us the platforms in question are inundated with support calls, so it can take days, sometimes weeks, for staff to get back to them after a query.

And while some advisers say they understand why the replatforming exercises are necessary and they sympathise with the platforms’ difficulties, their tolerance only extends so far.

That said, where platforms’ low service standards do not directly impact on clients, advisers are more likely to cope with the inconvenience, as long as they still judge them “suitable” at a client’s annual review.

It is only once clients start calling in and advisers can’t get support swiftly that they are quicker to act.

Barriers
The extra work involved is disincentive enough against switching. But there are other barriers – especially for in-specie transfers. Over 90 per cent of advisers say they will generally move a client’s investments between platforms less frequently than every five years, according to the FCA Investment Platforms Market Study.

Our interviews with advisers reveal that many consider the cost and effort to outweigh the savings for clients.

The demand for in-specie transfers, in particular, is growing. Advisers have been seeing a steady rise in clients at and in retirement since pension freedoms, and many believe in-specie transfers will be more suitable for some of these clients than cash transfers.

But the few who dare to embark on this process often experience delays of up to three months, with typically very poor communications about what is happening with the investments.

In our upcoming UK Adviser Platform Guide, to be published later this month, we will analyse the barriers to switching platforms in detail. The FCA’s final report is also due imminently, so perhaps it will shed some light on how it plans to lift some of the barriers it found.

Mariam Pourshoushtari is an analyst at Platforum
For more information on Platforum’s report, UK Adviser Platforms: Issue 37, contact Andrew Ashwood at andrew.ashwood@platforum.co.uk

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