Uber, Airbnb, Amazon, Facebook. These are all examples of platforms. Platforms are not ordinary businesses scurrying after customers. Instead, they are so-called “multi-sided markets” that connect users on one side and suppliers on the other.
Hence Uber puts as much effort into signing up drivers as it does riders. As the platform provider, it handles payment – and transactions soar. Likewise, Amazon with third-party merchants and shoppers, and Airbnb with properties and nightly occupants.
Platforms exist in offline settings, but they are exceedingly hard to coordinate and monetise. Online it’s easier, and when they hit, they hit big (as the recent book “Machine Platform Crowd” by two MIT economists explains nicely).
Investment platforms aren’t so different from their digital cousins. The FCA defines a “platform service” as one that “distributes retail investment products which are offered to retail clients by more than one product provider.” In other words, an entity that sits between funds and investors, in Uber-like ways.
The FCA definition adds that the service is neither solely paid for by adviser charges nor ancillary to the activity of managing investments for the retail client. Indeed the FCA actually adds values-based qualities to its definition: “arranging and safeguarding and administering investments.” Yes, safeguarding. (The only thing Uber cares to safeguard is its founders share options…)
Strikingly, the recent Investment Platforms Market Study Terms of Reference raises concerns that platforms are misunderstood. In particular, the suggestion that platforms are ‘distributors’ and should influence pricing of funds raised eyebrows among professionals.
I am regularly asked to define “platform” – a penalty of running a firm called “Platforum”. The nature of platforms has evolved in recent years and now different businesses are moving in different directions. So this week I put the question to some industry heavyweights to weigh in. Their views are below.
You can join the conversation with your own definition on Twitter using the hashtag #PlatformDefined or on LinkedIn by adding to this post via comments.
David Tiller, Head of Adviser and Wealth Manager Propositions, Standard Life
Like a stage, modern platforms provide advisers with the environment through which they express their art. The art of advice is to match changing client needs as closely as possible. The science is the accurate, efficient and compliant execution. Platforms enable both in a way that simply was not possible before.
To view platforms as product or fund marketplaces is to grossly underestimate the nature and value of a platform. Platforms are so much more. By enabling the integrated management of customers’ tax exposures and investment market risks possible, removing duplicated administration and custody layers and providing a robust control environment, platforms are enabling advisers to deliver better customer outcomes.
Danny Cox, Head of Communications at Hargreaves Lansdown
At Hargreaves Lansdown we see our platform as an integral part of our overall client service, which is designed to empower people to save and invest with confidence.
A platform essentially provides investors with a secure home for their savings and investments, making it easy for them to manage their investments at the click of the button, or tap within an app, with a SIPP and ISA wrapper to shelter their savings from the taxman.
Platforms are not commoditised though, they come in different shapes and sizes and there is a range of information and services which are offered to clients depending on which provider they choose.
Mark Till, Chief Distribution and Marketing Officer at Aegon
Platforms are an adviser’s primary tool for managing and overseeing a client’s long-term savings. Unlike a traditional life office product, they enable comprehensive financial planning by aggregating pensions, ISAs and general investments in one place.
Platforms represent a way of doing business and their development was a natural response to the need to digitise record keeping and the monitoring and trading of investments.
For the customer they enable greater investment choice and allow advisers to spend more time thinking about clients’ goals and circumstances and less time focused on paperwork.
Ian Taylor, CEO at Transact
“Platform” is a label in search of a definition.
In the old days, Transact called itself a “wrap service” and Cofunds and FundsNetwork called themselves “fund supermarkets”. And then the FSA labeled them all as “platform services”. There are now 30 businesses tagged in the same way.
Probably the best way to define the spectrum of “platformness” is in terms of goals and of functionality.
Most of the 30 would agree that their goal is to provide client-centric infrastructure for the execution of a financial plan. And most would agree that, as a minimum, they provide custody, aggregated trading, tax wrapping, reporting and largely unfettered asset choice.
Andy Bell, Chief Executive at AJ Bell
To my mind a platform is simply a bit of kit that makes it easier for advisers and investors to buy, safeguard, administer and track investments across a range of product wrappers online.
For advisers, that means providing straightforward, low cost access to the funds and products their clients need, and creating tools that reduce the time they spend on basic administration.
On the D2C side, it is about making saving and investing as simple as possible by providing an easy-to-use, one-stop-shop for building a portfolio, alongside information and guidance to help people along the way.
Verona Smith, Head of Platform at 7IM
Platforms are how we all invest, whether via advisers or direct. This is proved by the undeniable meteoric rise of platforms, which has now placed them at the cornerstone of the investment management industry.
Platforms are not just fund supermarkets – they are how investors experience financial services alongside their financial planner (if they have one). Not all platforms are offering the same services. All platforms at their heart must do the dealing, custody, client money, retail record keeping, and this is the structure upon which all platforms are built. What services a platform provides over and above that determines how the client will experience investing.
Some platforms are built to support the advisory process, helping advisers to give good advice. Other platforms are built for the direct market and give the non-advised person information on investments which could be relevant for them.
Overall a platform needs to deliver positive customer outcomes which is another way of saying that the customer is happy.
Peter Mann, Former Vice Chairman of Old Mutual Wealth and Consultant to Platforum
Others will comment on what they are, I will focus on what they mean and what they have done.
To clients they mean an efficient environment to achieve their financial goals, however they chose to do so. To advisers they provide the same efficiency in the advice and transaction elements of the cycle – and, through clever tools, many other things. To platform service operators they provide plethora of things ranging from the VI hub of the integrated service to the purist standalone platform services. They also, for some, provide the continuing challenge of capital expenditure and the platform / legacy conundrum.
However, the one thing that is true for all is that they have revolutionised the way that we interact with our money. They have challenged the order of the legacy past and pioneered a new way forward. Long may they continue to do so.
Clive Waller, Managing Director at CWC Research
Ten or more years ago, the UK Platform Awards judges argued about the definition of a platform. One highly respected industry figure stipulated that to be called a platform, custody was an essential function. Since that would have eliminated 7 IM and Raymond James for starters, I made a rare executive (sic) decision. Is SEI the platform, or is it Towry? Is Pershing the platform, or is it Raymond James?
Tomorrow’s so-called platform will be a collection of bits of IT linked with APIs carrying out different functions, custody, trading, admin, practice management etc, etc. Most will be invisible. In short, a ‘platform’ is the collection of systems that link funds, securities et al to a customer, and enable all the necessary functions.
Finally, in tomorrow’s world, the customer will be much, much, more engaged.
Malcolm Kerr, Senior Adviser at EY Financial Services
Ian Taylor, CEO of Transact, once said: “They are a way of making a small amount of money over a long time.” Last time I looked, Transact was making more money from platform services than all the other players combined. So that’s a good start.
But what are “platform services”? Years ago, I defined them as transactions, aggregation, single view of assets and liabilities for advisers and clients, re-balancing, adviser fee facilitation etc; with the potential to dis-intermediate providers.
Today that definition holds true for some. For others, I think platforms are a distribution channel.
Director of UK Retail at a Leading UK Asset Manager
Platforms play a key role in the value chain as a means of providing ease of transacting and administration/custody for their users and as aggregators they allow us to deal with large numbers of intermediaries in one go.
That said, I think that they may be regarded primarily as utilities from a manufacturer’s point of view as they primarily serve intermediaries and end clients but we should be open to challenging this view as technology advances and the platform sector sees probable consolidation in line with the industry more generally.
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Again, you can join the conversation with your own definition on Twitter using the hashtag #PlatformDefined or on LinkedIn by adding to this post via comments.