Old Mutual Wealth’s decision to terminate its contract with IFDS and to engage FNZ for its platform upgrade is big news to industry pundits. But does it matter for financial advisers and their customers?
Perhaps it is like the spark-plug in the racing car, the chip inside the iPhone or the barrel for the wine . . .
The replatforming project risks becoming a black cloud that will hang over Old Mutual Wealth and affect advisers’ judgement about the platform. So we’re devoting this week’s email to the issues that should be top-of-mind for financial advisers.
Costs
Yes, the costs are high for the replatforming — and higher than originally forecast. Is this actually a real concern for financial advisers and their customers? We don’t think it is relevant for IFAs unless it undermines the financial stability of the group. That is clearly not the case for Old Mutual Wealth.
Some suggest the parent company might decide the cost of maintaining or upgrading is too high. Yet that’s ridiculous. In fact the inverse is true: having made the sunk-cost investment, the firm has a burning interest in being more present than ever. And all signs suggest that Old Mutual is committed to the UK platform market.
Strikingly, markets reacted well to the news. Old Mutual Wealth’s parent company share price (OM) jumped after the announcement and closed the day up 0.36%.
It’s the front end that matters
Financial advisers aren’t typically concerned with the internal machinations of a life company and are more interested in whether the platform “does what it says on the tin”. On this, Old Mutual Wealth scores well. The firm ranked 4th in our Q1 User Leaderboard for platforms over £12bn AUA, based on surveys with financial advisers.
Advisers give the firm good scores relative to its peers on web usability, usefulness of online tools, ease of doing business and technical support. The firm does score lower than its competitors in customer service and BDM support.
Many platforms stop investing in the front end when they are going through a platform upgrade. Not so with Old Mutual Wealth. They’ve continued to make enhancements, and the adviser reviews bear that out.
Falling behind on basic functionality
The replatforming is due to be completed in late 2018 or early 2019. So if Old Mutual Wealth can’t add some basic functionality to the platform until then, it will look out of step with competitors.
In particular, advisers tell us they want a cash account facility. The platform also lags competitors on functionality for DFM model portfolios, and may soon become the only platform that doesn’t support ETFs.
Commoditisation of platforms
One industry observer suggests that all platforms will start to look the same as they increasingly use the same back-end technology. We respectfully disagree, it is a catty comment – and there’s barely a whisker of truth to it.
Outsourced platform technology rarely runs entirely on trunk code with a universal release cycle. Outsourced technology firms largely write branch code and different versions that are customer centric. For example, Standard Life Wrap and Elevate use the same provider but there is a consensus that they are very different iterations of the same software.
Another way of looking at it: the Swiss company Swatch produces the mechanisms that go into around half the watches sold annually, including for luxury brands like Cartier. But no one would complain that there’s homogeneity among watches – companies actively compete on the front-end design. So too do platforms vis-à-vis their back-end technology providers.
Implications for other platforms using FNZ
Advisers who use other platforms that run on FNZ may wonder if there are knock-on effects for those platforms. We don’t expect any negative consequences for other platforms that use FNZ – which will need to be more careful than ever to ring-fence projects and project teams.
David Tiller, head of Standard Life’s platform (and FNZ’s biggest UK platform customer) isn’t worried. When I spoke with him earlier this week he said: “It’s good to have a successful FNZ. I imagine the opposite would be far more concerning.” Quite right.
Silver lining
As with every dark cloud, there is a silver lining. Advisers who have a significant amount of business with Old Mutual Wealth might be able to use this as an opportunity to get an even sweeter deal with the platform. If the spark-plug works well, the car may win the race.