We have been studying the retail investment industry for more than a decade and, in that time, the changes have been immense. Summer is a good time to reflect, so allow me to take a look at the recent trends that point towards more muscular competition for everyone.
Three themes in particular underscore how the business is changing: the decline of the big three fund supermarkets, the rise of vertical integration and platform back-end technology consolidation.
1: Decline of the big three
The three original fund supermarkets (Cofunds, FundsNetwork and Old Mutual Group, née Skandia) have long dominated the adviser platform market.
However, the composition of the market is shifting, in particular with the rise of life company-owned players. The three fund supermarkets saw their collective assets fall below 50 per cent of the market share in Q1 for the first time.
To be sure, all three still enjoy growth, and in pound terms the growth is impressive. However, fourth-ranked Standard Life is growing faster than the market average.
Several mid-sized players are also ratcheting up strong growth figures, including Aegon (up 38 per cent), Aviva (up 19 per cent) and Zurich (up 12 per cent).
Life companies have the advantage of having off-platform assets to transfer on platform. While that has certainly helped growth rates, we are seeing a slowing in movement of these assets. After all, once they are on, they are on.
2: Rise of vertical integration
We are also seeing a rise among players pursuing vertical integration. Standard Life, for example, is seeing strong uptake of its MyFolio product.
MyFolio is selected most often by financial advisers when they are asked which multi-manager funds they use. We see preference for Standard Life’s multi-manager funds among users of the Standard Life platform and a similar preference among Aviva users, although for Aviva multi-manager funds.
Smaller platforms that integrate the investment solution are also seeing terrific results. Parmenion, for example, posted 24 per cent growth in Q1 (albeit from a relatively small base) and gets high scores from advisers across a range of criteria including BDM support, ease of use and usefulness of online tools. 7IM also posted strong results, with assets under administration up 10 per cent alongside high user reviews across the board.
While we believe there is room for many models, platforms are increasingly under pressure to cut fees while at the same time needing to reinvest to maintain relevance in a rapidly changing market. It is becoming hard to see a path forward for independent platforms that have not yet achieved scale.
3: Platform consolidation
The final theme to delve into is consolidation. We are often asked if we anticipate consolidation in the market. There are numerous platforms in the UK and whether they will all remain independent is a matter for debate. It is worth remembering, though, that we have already seen consolidation: at the back end.
FundsNetwork and Ascentric are moving to Bravura to join Aviva and Nucleus. Cofunds is also rumoured to be considering a move to Bravura (although whether L&G will fork out the cash is up for debate).
Alliance Trust Savings is moving to GBST and Old Mutual is moving to IFDS. This is a lot of money in motion and opens the industry up to some trying times in the coming months – after all, there are always bumps in the road for big technology shifts.
Some believe two businesses running on the same back end makes consolidation easier. So technological integration could be a precursor to platform consolidation.
Whether or not there is consolidation of platforms, we are optimistic for future growth of the market. There are off-platform assets still to be moved and there are drawdown assets coming on platform that used to go into annuities. There are also discretionary fund management assets that still sit largely off-platform.
We predict double-digit growth for 2015 – in the region of 20 per cent. It depends on the markets but things are looking good for the adviser platform world.
Heather Hopkins is research director at Platforum