This quarter assets on adviser platforms grew by over 5%, beating the growth of the FTSE All share, which grew by 3.1% over the same period. Year-on-year growth for adviser platform assets went north of 20%, a whopping increase.
Market performance is an important factor in the growth of assets on adviser platforms but we don’t think that is the whole story here. Once again in quarter 4, flows to pension wrappers make up 82% of net sales, and DB to DC pension transfers are undoubtedly boosting these sales. The Bank of England base rate cut to 0.25% in August and low gilt yields are inflating transfer values. Whilst this trend is unlikely to continue indefinitely, for now it is having an impact.
For some platforms, growth in assets is augmented by an ongoing programme of transitioning legacy books of business onto the platform and this has clearly been a driver of Aegon’s growth in assets in Q4. (But we also hear they have been successful at winning some new corporate business, which is included in their AUA figures.) AUA for the combined Cofunds and Aegon entity are up 9.4% for the quarter.
Aviva achieved strong growth – among the highest percentage growth of the platforms we track, and we understand that Aviva’s programme of work to bring legacy assets onto the platform is nearing completion with just 10% of flows being accounted for by legacy assets. Parmenion also had a good quarter. Most platforms have achieved percentage growth in assets of between 4% and 5%. Scale is important, and with scale adviser platforms have greater room for manoeuvre to deal with regulatory change, constant demands to invest in technology and if and when there is a price squeeze. The race to gather assets is on for the smaller platforms.
At the end of 2016, the big platform story was M&A following Standard Life’s acquisition of Elevate and Aegon’s impending acquisition of Cofunds (Aegon received regulatory approval to buy Cofunds in January 2017). Standard Life and Aegon are now both focused on the integration of the Elevate and Cofunds platforms, although Standard Life will keep the Elevate platform separate from Standard Life Wrap.
The M&A activity we saw last year has unsurprisingly caused ripples in the adviser market. For the first time, when we asked advisers to tell us about the top five musts of their perfect platform, the highest percentage of advisers see financial stability as the top must of the perfect platform.
Advisers are rightly concerned that the platform they are placing client assets on will continue to exist in 5 to 10 years time. Recent M&A activity has made advisers all too aware that when they choose a platform, their clients will hold them accountable for it. New owners mean change and potential disruption, and whilst the average client has little awareness of, or interest in, platforms, they clearly expect advisers to choose the custodian of their assets wisely. When M&A occurs, the decision is out of advisers’ hands – although advisers can vote with their feet and wind down assets on the platform.
In both the Standard Life and Aegon acquisitions, we believe that the acquisitions are to the benefit of advisers and clients, as both of these firms are firmly committed to the retail advisory market. Every effort is being made to make them a success. We don’t envisage a scenario where a platform will suddenly fail, although advisers have told me that they worry that this could happen. But the events of 2016 are playing on advisers’ minds and will undoubtedly influence advisers’ approach to their platform due diligence.
We will further probe adviser views on platform performance in the 29th edition of the Adviser Platform Guide – out the week after next.