Last week I was delighted to have the opportunity to talk about one of the most critical challenges for platforms over the next 5 to 10 years – whichhow do they need to evolve? And by ‘need’ – we frankly mean what’s required if platforms are genuinely to meet the needs of intermediaries and investors over the next decade, as well as meeting their own needs as a profitable businesses
In other words, what are going to be the key attributes of the platforms that people will queue up to use – the attributes that – if a platform doesn’t possess them – then their path of future growth is going to be all the rockier and more hazardous?
We believe workplace savings, scale and user experience are the three attributes that will be key to the future evolution of platforms following what has been their first period of growth
Workplace might seem an odd one to start with, after all – as platforms – we’ve done perfectly well attracting assets via intermediaries and D2C investors looking to manage their non-workplace savings, haven’t we? But it should register because once the auto-enrolment roll-out is complete, 20 million out of 27 million working people are likely to be investing in a pension. Auto-enrolment is the largest behavioural pension-based exercise ever seen. And workplace saving may be reliant right now on worker inertia – but it stands to transform and shift our savings culture like nothing before. I think auto-enrolment could create a culture of engaged, conscious saving and investment based around the workplace. Any platform with an eye on future growth and serving UK savers HAS to part of that conversation.
That means supporting employers, the advisers who advise them and the workers themselves – with flexible pension wrappers, investment choice and robust default options.
It means providing an online venue on which employers can manage enrolment and governance, where employees can plot their progress and access tools to plan for their retirement – and advisers can help to bring the whole savings journey together.
It also means recognising that in their highly connected, digital world, this new generation of investors want to be able to view all their arrangements in one place. The idea of having your workplace savings in one place and your other investments and financial arrangements somewhere completely different, is going to seem increasingly archaic and, in fact, downright irritating. The next-generation platforms will be the ones that recognise this and provide answers.
The past 17 years have been a boom time for the platform industry. Despite, or perhaps arguably because of – shocks like the global credit crisis, different platforms and different platform models have proliferated – in the advised market alone there are some 28 notable platforms now active in the UK market.
However, platforms are faced with ongoing regulatory scrutiny and regulatory demands that aren’t going to lessen any time soon. From MIFID II to PRIIPS to GDPR to the Investment Platforms Market Study back at home. We are becoming the dominant means of investment distribution – and so clearly and quite rightly we are in regulators’ sights. Every platform needs to be able to deal with whatever repercussions that regulatory scrutiny entails.
Then think about the different stakeholders that platforms serve and what they want and expect. First – there are shareholders who expect a real ongoing return on capital. Second there are intermediaries and intermediaries who will only countenance using those platforms that can deliver the best user experience, connectivity, functionality and business support. Finally, of course, consumers who also want and expect a great digital experience at a competitive cost.
You can only meet the needs of these three stakeholders and keep investing in your platform above and beyond what’s required by regulation if you have SCALE.
According to our calculations and modelling, assets under administration of not less than £100 billion. This is the type of volume platforms will need to sustainably align the needs of shareholders, consumers and intermediaries over the next five years.
At Aegon we’re the only firm to be in sight of that magic number. But that’s why we joined forces with Cofunds in the first place. Over the next five years, as this need for scale becomes increasingly evident – we’re going to see many other firms follow suit and the market consolidate
It’s true that platforms are primarily a digital business. So – when you think about a platform user experience, you immediately think about a digital user experience. But looking forward, I think there will be much more to it than that. I think the winning platforms will be those that offer a user experience that stretches seamlessly from the digital world to the real world – and, equally, stretches seamlessly to integrate with intermediaries’ own back-office systems to drive efficiency and reduce errors.
The next generation of platform technology will provide not only a far more intuitive digital experience but also a far more joined-up offline experience – from outstanding technical support and onboarding to insightful business development teams that can partner with intermediaries to help them make their businesses.
In fact we believe that quality of online to offline service and support will be a key battleground in the next five to 10 years. Yes, costs will continue to be an important factor for intermediaries and their clients, and yes, we can all achieve better usability and functionality. But in the very long run, it will be harder and harder to differentiate on cost or functionality. Service and support is the one big area where platforms – and advised platforms in particular- can aim to outperform and stand apart. And platforms that neglect this aspect of their proposition – perhaps in a bid to keep driving down their fees – do so at their peril
So there are the three attributes that we think the next-generation of platforms will need to possess to survive and thrive in what is highly likely to be a period of aggressive consolidation:
First, full integration with workplace savings to be at the heart of a transformative workplace based savings culture Second, the scale to be able to meet the different needs and priorities of consumers, intermediaries and shareholders. And, third, excellence in service and support – giving customers an offline experience that melds seamlessly with their online one.
We believe that those platforms that possess those attributes and are adaptable, strong and forward thinking will be the ones that not only survive but flourish in the future.
Mark Till, Chief Distribution and Marketing Officer, Aegon