Markets love heterogeneity, but users often gravitate towards homogeneity. Here is a startlingly public confession: If I were a financial adviser, I would only use one platform.
I understand the objection: a single platform surely cannot be the ideal solution for every client. The regulator has all but said that, to be considered independent, financial advisers need to use multiple platforms.
But the regulator has also introduced all sorts of reporting requirements, such as Mifid II’s ex-post reporting (see last week's Adviser Workshop), which make it inefficient to use multiple platforms.
These drive up costs. And if the concern is competition, there are better ways to achieve it.
In a NextWealth survey late last year, advisers told us they use an average of 3.6 platforms. Here are four reasons why advisers should use one platform, and two alternative ways to foster competition among platforms:
1. The regulator is fine with IFAs using one platform
The thematic review (TR14/5), which said independent advisers would probably need to use more than one platform, goes on to say a firm that wants to use one platform ‘would have to find a platform that offered a range of products covering the whole of the retail investment product market (or the whole of a sector of that market).’
Most clients need widely available products. There will be outliers and, in those cases, advisers may want to use a different platform. But most investor needs can be met by most of the leading platforms.
Also, several quality advice firms put most (over 85%) of their client business on a single platform. A firm I know well uses AJ Bell InvestCentre for the majority of its business. It does a market review each year to confirm the platform is the right one for its clients. Importantly, it has had no concerns from the regulator about its approach.
2. It would save investors money
Advisers have done a terrific job of negotiating platform charges on behalf of their clients. The savings are passed directly to the investor. But advisers could pushmuch more on price if they could commit to putting all assets on a single platform.
The effective rate for adviser platforms varies from a low of around 0.06% to a high of 1.44%. Most investors pay between 0.2% and 0.45%, and we estimate the median charge is 0.24%.
Published rate cards are misleading, as all platforms do price deals. Platform charges are not a big part of the supply chain, but there is room to squeeze.
3. It would save the adviser firm time
Advisers tell me each platform they add in their business adds cost, particularly as they prepare for the ex-post reporting required under Mifid II. This has been an administrative nightmare for firms using multiple platforms.
Data is inconsistent from one platform to the next, and it is sometimes hard to find. A paraplanner told me it takes several clicks on Aviva’s platform to get the platform charge, and it is held separately from other charges. At this paraplanner's firm there are two people working full time collating information from multiple platforms. Hold times are often long, further eating into staff time.
4. Using fewer platforms reduces risk
A firm I visited in the Midlands recently was forced to pay £30,000 in compensation to a client due to an administrator’s error. The administrator entered the client’s details and trading information onto the platform and clicked was to send it to the adviser for review. The problem was the button she clicked was in fact to place the order.
The button to send the order for approval on one platform is in the same place as the one to execute the trade on another platform. The details had been entered incorrectly, so the firm had to reimburse the client. The person on the administration team lost her job, and the firm lost £30,000.
The worry is there will not be healthy competition to lower costs and improve service if each firm only uses one platform. There are two possible remedies.
1. Switching needs to be easier. Bulk switching of assets would help maintain healthy competition. Advisers could more easily vote with their feet.
2. Wait for an ‘open platform’. Open banking was introduced in 2018, giving savers control over their banking data and allowing them to share it with third parties. Many believe the march is on toward open data, and open banking was just the start.
With an ‘open platform’, advisers could gain access to customer data and use third-party tools to run aggregated reporting.
Heather Hopkins is managing director at NextWealth