With more than 30 platforms currently available, there is little doubt that those able to compete on price alone will find it difficult to sustain such a model going forward, particularly with the likelihood of more overseas entrants entering the sector. Whether this results in a bout of consolidation is unknown, but it is certainly something advisers need to be mindful of. So what other specific issues should advisers be looking for during the next two to three years as the new policy rules bed in?
As FCA guidance makes clear, it is unlikely that independent advisers will find one platform to suit the needs of all clients, at least in these early stages of regulatory evolution. In terms of due diligence, the FCA has recommended a range of areas advisers need to look at when ensuring that platforms used meet the necessary requirements, including product selection, tax wrappers, functionality, accessibility and support. This gives advisers some important clues as to what areas will increasingly pop up as important factors when choosing a platform.
Segmentation
In particular, advisers will have to clearly segment clients in order to justify platform choices. After all, the regulator wants to see that advisers can explain why they have chosen a particular platform. Whether an adviser uses one platform or takes a multi-platform approach, there needs to be a clear link back to any given client.
The type of clients on a firm’s books may dictate what platforms are chosen. So clients who are more price sensitive may have simpler product requirements, while those with more sophisticated investments needs would require more rich functionality from a platform, such as model portfolio management or the option of varied tax wrappers.
This has led to some speculation about the growth in ‘guided’ rather than open architecture platforms. Indeed, a survey conducted in February this year by the European platform trade association, the Fund Platform Group, reported that while the vast majority of European platforms operated in an open architecture environment, with 82 per cent offering full open architecture, there was speculation that the appetite for open architecture was lessening.
In the UK, in particular, consolidation in the adviser market and the adoption of model portfolios – which are arguably guided architecture – perhaps herald a move away from open architecture. However, I agree with the report that natural selection offered by open architecture, which may or may not lead to a common choice of manager or product, is not the same as operating solely within a limited guided architecture market. So I believe that customer choice under the remit of open architecture is here to stay.
