In this week’s email, Miranda Seath (@SeathMiranda) and Juliette Curtis Hayward share their thoughts on platform models and ownership, an issue highlighted by adviser opinion expressed in the Q3 adviser survey.
This week we published our quarterly adviser platform guide. Part of the research process involves analysing the comments that advisers make in our quarterly survey. These always make interesting reading; our personal favourite this quarter being “good humans, too much paper”.
Whilst adviser comments are directed at the individual platforms they use, there is often a thread that runs through them, giving us an insight into the prevailing mood of advisers. This quarter, we have noticed that advisers are paying closer attention to platform business models and ownership.
Platform ownership is a topic that has been endlessly picked over by the press. Advisers are picking up on this. One commenting, “I do not trust product providers not to dump their wrap business when it suits them”. Both Cofunds and AXA Wealth Elevate have been rumoured to be up for sale this year, without any statement made by the respective parent companies to either confirm or deny this for months at a time. Legal & General only recently stepped in to make a statement that it is committed to ‘focus on improving operational efficiency in Cofunds’. Advisers understandably do not like uncertainty;‘established heritage and a commitment to investment ’ being cited by one as a selling point this quarter.
We are also seeing more comments on platform business models. Some platforms have gone or are going down the vertically integrated route, where once open architecture dominated. One adviser commented on their platform “Dislike the fact that they are becoming vertically integrated like SJP”. Vertical integration will always polarise industry opinion. An adviser uncomfortable with this approach can always avoid using platforms that follow this model. But if a platform changes direction, shifting its strategy and business model, understandably some advisers may not want to stick around for the ride.
And therein lies the rub. Even if an adviser wants to vote with his or her feet and sack a particular platform, it is not quite that simple. Re-registering clients’ assets on to another platform is costly to the client (there are estimates that the adviser fee involved can be £1000 per client, depending on the portfolio size) and often protracted. There will be an out-of-market cost to the client: this could work in the client’s favour but equally it might not. So for now, many advisers are confined to weighing considerations of financial strength, platform models and ownership carefully when placing new business. This leaves legacy assets on platforms that advisers may be turning away from. We track primary (the platform considered by the adviser to hold the largest percentage of client assets) and secondary platform use by advisers each quarter. Next year, we will look closely to see how primary and secondary platform use is affected as advisers assess where to place new assets.
In other news, Standard & Poor’s and Gallup have devised a short survey to test global financial literacy. The test covers four basic personal finance topics: inflation, interest, compounding and financial diversification. Inevitably, we found ourselves taking it… the Platforum team (survey sample of 5) has better financial literacy than Norway. Hooray!
It’s interesting to note the relative financial sophistication of the US (14th place) and UK (6th place) when we are thinking about the pensions market and what we can learn from the US.
We often look to the US as a marker of things to come following the pension freedoms but this survey gives pause for thought. We will be looking at decumulation in the US in more depth in the Retirement Income guide due out in December.