Advised and non-advised platforms are set to win big following yesterday’s Budget and the The Platforum expects Assets under Administration on advised platforms to hit £495bn by December 2016.
We have also revised up our expectations for the direct to consumer platform market and predict it will hit £270bn by December 2016.
Prior to yesterday’s budget our expectation was for the direct market to be at £235bn by the end of 2016.
The increase of the ISA allowance to £15,000, the ongoing move towards flexible open architecture pensions and the combined cash/shares New Isa (Nisa) are all contributing factors.
The ‘nicer’ ISA
Whilst affordability clearly means that relatively few of Britain’s 14.7m investors are able to set aside the full £15,000 per annum, we nonetheless expect Isa contributions to rise.
There are circa three million advised customers on platforms today, with assets of £265bn as at December 2013. Circa 30 per cent of these assets sit in Isas today. As a huge 98 per cent of all new advised Isa business is written on-platform, these businesses are clear beneficiaries of these changes.
If, for example, half of the three million advised clients on platforms contribute the additional £3,500 into Isas, that’s an additional £5bn of sales per year.
In the direct to consumer market there are circa two million individuals holding direct platform accounts. Of the £116bn held on direct platforms as at September 2013, 38 per cent (£44bn) was in Isas. Non-advised investors now identify platforms as the most likely route of purchase for their next investment and we anticipate greater inflows as a result of yesterday’s Budget to direct platforms.
Growth of the direct and advised platform markets since 2007, including growth projections for next three years:
Bridging the gap between savers and investors
Perhaps more important than the additional contributions is the change to savings behaviour we might see. One of the biggest opportunities for direct platforms at the moment is those savers who don’t currently invest – according to our research, 23 per cent of UK adults (11.4m people) have cash savings but no investments.
Bringing cash and stocks & shares Isas together under the Nisa label will bring savers into closer proximity with the investments world and we could see greater interaction between the two. This could see more of the UK’s savers dip a toe into the investment space, especially at a time of low interest rates.
Platforms attempting to appeal to less confident investors and focussing on guidance – such as Axa Self Investor, Bestinvest, Fidelity, Hargreaves Lansdown, rplan and The Share Centre – are likely to benefit from these changes.
Banks and building societies providing investments alongside savings – such as Barclays, HSBC and Nationwide – should be able to simplify the journey that people make from being Isa savers to Isa investors, so we would also see them as beneficiaries of yesterday’s announcements, if they can overcome their fear of Conduct Risk and make the customer journey easier.
Increased flexibility in pensions will see platforms remain relevant for more people post-retirement. Previously platforms have focussed on customers in the 40-65 age bracket. At the same time as we see new investors starting to adopt platforms at earlier ages, we could now see some real innovation which will position a flexible, multi-faceted investment platform at the heart of a customer’s financial affairs for much longer.
The move by Aegon, for example, to house its accumulation and decumulation solutions on a single common platform starts to look a lot more relevant. We expect to see acceleration in the ongoing transfer of traditional life company pensions business to platforms, coupled with more assets remaining on platforms during retirement”.
In the adviser platform market those platforms with a large proportion of assets in pensions – namely Aegon, AJ Bell Sippcentre, Aviva, James Hay, Nucleus, Standard Life and Zurich – should benefit, although clearly firms with annuity businesses are digesting the anticipated impact to these particular product lines.
Holly Mackay is managing director at The Platforum