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The Platforum on what next for third-party investment solutions

The shift away from an open architecture platform model is hurting traditional retail asset managers.

Richard Bradley Peach 250x255

Adviser platforms in the UK are now around 15 years old. They have had their growth spurts and are trying to decide what they want to do next. Some have discovered asset management.

In the beginning, platforms were used primarily as delivery mechanisms for fund managers. The fund manager covered the cost through bundled charging and those platforms with scale were able to negotiate down on price, hence the term “fund supermarket”. 

Fast-forward a little and the desire to add more investment options led to the inclusion of third-party and in-house tax wrappers, hence the name “wraps”.

Then the RDR came along. Bundled pricing and commission were banned and the regulator demanded robust and repeatable processes. The centralised investment proposition came into its own and we have an increasing shift towards advisers demanding “solutions” – such as multi-manager funds or model portfolios – rather than products.

Providers of these products/services have been busy partnering with platforms and advisers can now find a plethora of third-party investment solutions there alongside solutions provided by platforms themselves.

In our latest quarterly survey we asked advisers what they considered a platform to actually be and 31 per cent said it was an investment solution. Despite what many plat-forms feel, they are not generally regarded as advisers’ business development partners (6 per cent) or tax wrapper providers (16 per cent). More advisers are providing their clients with outcomes rather than buying products and are looking to use platforms to facilitate this.

A fifth of advisers see platforms primarily as a piece of technology. This suggests that, despite the trend towards packaged solutions, there is still a large number that regard platforms as a bit of kit used to facilitate advice and investment management rather than provide it.

The trend towards solutions over product is also not specific to the adviser market. Over on the direct-to-consumer side we have already seen new groups such as Nutmeg come to market based around providing their own solutions rather than access to others’ products. Meanwhile, established platform Hargreaves Lansdown now has just under 5 per cent of its platform assets invested in its own multi-manager funds. Two “solutions” providers – Parmenion on the adviser side and Nutmeg on D2C – appeared on the recent FinTech50 list of the 50 firms transforming the future of finance. So, what ultimately happened to the third-party tax wrappers on platforms? Once platforms had reached scale, many added their own proprietary wrappers, leading to a fall in the amount of third-party wrapper business. We also saw new entrants coming into the market with only their own proprietary wrappers.

Will we see investment solutions go the same way? For example, some platforms muscling in with their own investment proposition and new entrants to the market with a small number of solutions rather than a vast range of products?

With platforms currently responsible for around 80 per cent of new advised investment business, a shift away from an open architecture platform model would hurt the traditional retail asset managers, which may find platforms buy in more of their services through their own products rather than simply making them available to clients.

Richard Bradley is head of data at The Platforum

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