Hastily arranged coalitions full of compromise might well work in the corridors of Whitehall but should be avoided at all costs in long-term business partnerships. There is no equivalent of an election at the end of a fixed-term Parliament in business, so understanding the detail of what potential platform partners are offering your firm and your clients today and tomorrow is a big decision.
The platform industry is fast-moving. Those in the UK that have been around the longest are celebrating their 10th anniversary this year and look very different from the simple fund supermarkets launched at the peak of the dotcom frenzy.
Unlike many of the big ideas of that time, these supermarkets (now platforms) have established deep roots in the fund distribution industry. So much so that the FSA has recognised the pivotal role they will play in the future in its latest retail distribution review platform discussion paper.
Platforms have evolved from simple shop windows into well-rounded front and back-office business tools, without which some advisers would feel lost. There are now a multitude of solutions calling themselves platforms – from those which once described themselves as supermarkets to the more recently launched wraps. Despite the different labels, these propositions provide the same essential capabilities – and where differences exist, these will likely converge over the next few years.
What is strikingly similar, however, are the challenges that lie ahead for this part of the market.
For all the changes and development of the past decade, I am certain the platform is still just at basecamp. In the coming decade it will evolve further to meet the changing demands of investors, advisers and the regulator. No one platform is yet the finished solution and there is much development ahead. The investment has only just started.
So if you are not in a platform coalition at the moment but are considering joining one (or two for that matter) – or if instead you are considering switching your party allegiance – there are some questions you must ask yourself to get to the bottom of whether the platform deserves your vote now and will still deserve it in five or 10 years.
First, is the platform able to cope with a more demanding regulator?
It is very unlikely that any platform can already claim to be RDR-ready. So without doubt, RDR will dominate the development agenda over the next two years. Changes to business practices and systems will be required to achieve the RDR seal of approval and even though there is a common will to reach the required standard in time, some companies will find this work harder than others.
In addition, as a reflection of their rising significance, there is a growing requirement for platforms to increase their contingency capital.
Depending on the size of the business, this will mean potentially millions of pounds will need to be put aside in case of emergency quite simply meaning that many will have less to invest.
This additional expense is really reassuring to investors and advisers who will take great comfort from knowing their platform partner can withstand a solvency crisis but will be eye-wateringly expensive for some of the platforms with weaker financial backing or limited cashflow.
Whatever the position, the outcome is that the cost of doing business as a platform is on the rise.
An outcome of the changing regulatory backdrop will be the evolution of advisers. This gives rise to question two: will the platform keep pace with your changing demands?
Post-RDR, the industry will be more professional, working on customer-agreed fees and will likely have more diverse and segmented propositions. The adviser firm will undoubtedly be bigger, more complex and manage more valuable investors. IFAs will want a broader range of products and more efficient services to enable ever more complex propositions to their customers.
New business practices will only be realistic if the platform is responsive enough to handle this. Ideally, it should be leading the development and offering services you did not even realise you needed.
Question three asks whether the platform is able to adapt to the UK’s changing demographics.
The UK’s population – in fact the whole of the developed world’s – is ageing. The inevitable outcome of this is that people will spend longer in retirement and have to save harder for it.
Wealth accumulation is the dominant motivation across the industry right now and a shift in fundamental attitudes is required to reflect the changing needs of your investors as the balance slowly tips towards income generation and wealth preservation. Will the platforms that are courting you recognise this in their propositions in the future? Or will you need to be pushing them hard to adapt?
For all the changes of the past decade, the platform is still at basecamp and will evolve further
To an extent, this is connected with the final question – will the platform be able to keep up with the 21st century’s switchedon customer?
Over the past 10 years, a revolution has taken place among consumers in all sectors. A combination of rebellion and empowerment has fuelled consumers to demand more value, more choice and better quality in all walks of life. We are dealing with an altogether different consumer.
Today’s clients are virtually unrecognisable from those of a decade ago. They are more demanding, better informed and infinitely more mobile than ever before. From their suppliers they demand transparency and trust, and to keep them in check they form new communities where information can be shared across vast networks.
They trust their peers more than the supplier and will cross-check the contents of glossy brochures with online consumer reviews. The new consumer has less time but wants control and technology helps them get it. It is only a matter of time before the changes in behaviour seen in the travel and retail industries, for example, are reflected in the minds of investors.
Responsibility is shifting from the state and the corporate sector to the individual. The move towards defined-contribution pensions is an example of this and the upshot is that people will need to be fully engaged with their investments. The new consumer will want to be in control of that responsibility. Technology will help them and platforms must understand this.
Only platforms with a genuine commitment to the market and the resources to back the investment required have real hope of survival over the coming years. Platforms are a low-margin, high-capital investment business – and the future is only going to get tougher. A relationship with a platform is a long-term, open-ended one, not a fixed-term coalition and deciding who gets your vote is a monumental decision not to be taken only as you approach the polling booth.