We are seeing some platforms flourish, while others struggle to grow new business flows and find capital to invest.
We are also seeing platforms diversifying their strategies away from the advised market, with more flows coming from the workplace and direct.
These early and largely benign phases of consolidation will eventually make way for something altogether more disruptive for advisers and clients.
There are currently more than 30 platforms in the UK market. We can expect this number to have halved by the end of 2018, with perhaps as few as six platforms supporting the requirements of advisers.
This reduction will play out in a number of ways. Some platforms will change their focus. There will also be more fettered and ‘robo’ propositions focusing on the workplace and direct markets.
Over time, the capabilities of these platforms will diverge from those supporting ongoing advice.
Advisers should also be prepared for platform exits. Some businesses will be so unappealing that their owners may choose to cut their losses and leave without being able to find a buyer.
Advisers should guard against the impact of any corporate action on their business and clients. The first step is identifying whether the platforms they use have committed backers and are prioritising their requirements.
Mike Hogg is head of platform strategy at Standard Life
Consolidation: expert view
Mike Hogg, head of platform strategy at Standard Life, analyses in more detail what shape platform industry consolidation may take:
“There will be platform mergers, but not many. There are simply not enough buyers and too many barriers to migration and integration.
Some buyers may end up taking on a loss-making business with significant development requirements. This may be lessened where platforms share underlying technology, but even then it is difficult to see much buy-side demand unless prices are deeply discounted.
Platform sellers have to accept they are selling struggling propositions with limited appeal. The transactions that do happen will be driven by owners wishing to cap their liabilities.”
Profitability: expert view
Abraham Okusanya, founder and director of FinalytiQ, says advisers with clients on loss-making platforms should consider drawing up contingency plans:
“Profitability is crucial and should play a key role in adviser due diligence and selection because the financial resources of a parent company just aren’t enough. Even big providers with deep pockets won’t continue to fund loss-making platform subsidiaries forever.
Eventually, shareholders will ask questions, big businesses will get reviewed, bean counters called in, restructuring happens and loss-making platforms are at risk of being axed by their parent companies. Only when the tide goes out do you discover who’s been swimming naked.
According to the latest FinalytiQ platform profitability report, nine out of the 23 advised platforms examined are loss-making, compared with seven loss-making [firms] in the previous year. While assets under administration increased by 20 per cent on the previous year, pre-tax profits fell by a whopping 72 per cent.
