Being a platform provider used to make you stand out from the herd. Transparency, open architecture and a rejection of the old insured product landscape gave you access to a fairly exclusive club but what happens when the club has too many members?
I have been considering this over the last couple of weeks since Zurich announced its FNZ wrap implementation will hit the market late this year. With Aegon’s forth-coming launch, that makes well over 25 platforms serving the IFA market.
Unfortunately, the classic wrap market probably does not have much more room. Most propositions there share underpinnings and innovation too often is in added value tools and sparkly shiny things that many advisers neither want or need.
The trick for new entrants will be to stand out. That is not going to be easy. The challenge for Zurich, Aegon and other new entrants as well as challengers is how to mark themselves out.
There will be a temptation to do this on price but the price leaders are already at 0.25 per cent. There is not much room left. A 0.05 per cent difference is probably not enough to disrupt existing relationships and it will make it harder for that provider to make ends meet.
There is clear blue water though in an underserved area in the platform market the mass affluent. We are talking here about clients who have a few Isas and perhaps £40,000 or £50,000 all in.
This part of the market works in counterintuitively. Normally, you would expect smaller clients to be less price-sensitive and perhaps they are in themselves. But, for advisers, it is vital to suppress the total cost of investing as far as possible to leave more space for their ad valorem charging.
Most IFAs I know do not want to cut their mid-market clients adrift. Apart from the fact that it just feels wrong, these clients are often the affluent of tomorrow. Leaving them to the clutches of the banks does not feel like a good solution, so the challenge is to find a proposition that works.
Advisers could use off-platform products for this group. A standard insured personal pension is available now for somewhere between 0.4 per cent and 0.5 per cent on a factory-gate basis. Next to this, a wrap or supermarket charging a composite rate of, say, 0.4 per cent or more just for the use of the platform feels uncompetitive.
The problem with off-platform products, though, is they are less efficient to manage than wraps. They tend not to have model portfolio functionality, bulk switching or rebalancing and the funds backing them are often murky.
Advisers wanting to serve this market simply cannot work on a per-client basis. They need to segment them and manage them as a group. In short, they need the incredible technology that platforms offer.
There is a genuine area for a wrap provider to get in underneath the existing market. We are talking about huge numbers of clients, all with relatively modest pots. Capital gains tax calculators, double-geared Guatemalan venture capital funds and offshore bonds are not much use for this lot. Advisers serving this market need the basics done right at a low cost, first time, every time.
And the price point? If someone can come up with a coherent proposition that mixes a cost very close to off-platform rates around 0.5 per cent that covers the platform and a decent range of passive and active insured funds, there could be a lot of business to pick up.
In the race to win the crowded high-net-worth sector, platforms are trying to out-manufacture each other. Funnily enough, wrap technology can benefit the less affluent and the advisers serving them just as much. For providers looking to differentiate themselves, this could be just the thing.
Mark Polson is principal of The Lang Cat