You may have seen a few headlines recently on the topic of ‘adviser-as-platform’. I don’t see huge merit in predicating the market’s future on a single dimension, but it is clear the one-way ride of the last 15 years is grinding to a halt. The most recent market share numbers, endless anecdotes from users and the obvious value for money challenges are all flashing red lights.
Amid all the noise, competing opinions and growing plethora of labels for the various models at play, it seems to me that there are two things that actually matter:
Are the underlying technology and operations fit for purpose?
Is the controlling entity aligned with advisers (where relevant) and with good client outcomes – and is the management able to execute?
The fit for purpose test
Let’s take point 1. Although in every other sphere of life we’ve seen material advances in technology in recent years, most of the tech underpinning the platform market has its roots in the noughties.
Even those firms who’ve built modern features have often done so on top of aged, legacy technologies, resulting in much higher build and maintenance costs than necessary. And, naturally, the client ends up paying for it.
Platform selection needs to move beyond feature lists and BDM relationships, towards a questioning assessment of the scalability, speed and reliability of a provider’s engineering output – including the ongoing cost of maintaining it.
Just as vertical integration should start with what customers actually need rather than what products you have to sell, so too should platform technology start with the granular, ‘grunt-y’ and infrastructural areas like custody and database structures, rather than the shiny front end.
Getting this right allows platform providers – and the clients they serve – to keep up on features, while ensuring that everything keeps pace on the all-important regulatory compliance, operational resilience and information security fronts. In other words, it’s what provides medium to long-term relevance.
Many of today’s platforms are nowhere near where they need to be, either because they’re caught up in a vendor management shambles with a third party, they’ve underinvested in legacy in-house tech, or they’ve claimed to have their own technology but, in fact, don’t (at least not all the way to the core).
I saw a comment recently that large platforms are slower to deliver change because they have more to lose. This is hard to believe. It feels much more likely to me that they’re stuck on an ancient version of a barely supported system and just can’t deliver their change agenda. Or they can, but only at vast cost and with all the upgrade upheaval that tends to accompany such projects.
Some of the newer technology in our market (Seccl’s included) is simply years ahead in terms of system architecture and the operational efficiency and development velocity that flows from that. While there may be some cases where old providers can still win on features, unless they materially shift pace (by 10x or more) fast, they’re going to be caught very soon.
The alignment test
Now to the second point. Most platforms are charging something between five and eight times the cost of the underlying technology and operations that power them. This is putting financial advice firms at a competitive disadvantage against fintechs, wealth managers and those adviser firms building their own platforms on infrastructure such as Seccl’s. These firms are somehow hoping that no-one’s going to notice and that those heady 30%-40% margin on 25bp revenues will prevail.
Let’s be clear: these numbers are nuts. Why’s should clients overpay so wildly for something that still feels painfully analogue? And why would advisers want to persist with an admin-heavy user experience when there are fully-digital options available?
In most cases, platforms are targeting a profit margin which is well in excess of the cost of the underlying service itself. And therein lies the conflict: there is zero alignment between the expectations set by shareholders and the quality of the experience being increasingly demanded by clients (and their advisers).
This all feels a bit like when companies or governments go wrong. The more you keep telling a story which is at odds with the emerging reality, the greater the collapse when the truth outs. The real issue isn’t about adviser-as-platform (or not). It’s whether our £1 trillion platform market is set up for the last decade or for the next.
TL;DR – it isn’t.
It’s execution failure that’s driving adviser firms to consider running their own platforms. Nothing else. Nothing sinister.
Most adviser firms offer a pretty well-developed offline proposition. It’s now vital to be at least as good online. Existing platforms are simply not delivering against that requirement – and clients are wildly overpaying for something that compromises the overall service they receive, resulting in massive ongoing operational and reputational costs to the advice firm. This is the issue. Not the label.
Four questions to close:
Why would an advice firm serving clients with £500k want to offer an online proposition materially deficient to a £20/month investment app?
Why should an adviser firm incur 20bps of additional cost because existing platforms require paper forms and fail to integrate with other systems?
Why should clients pay for sclerotic (thanks Platform) platforms to hit a 40% margin on an overpriced product?
Why would anyone want to keep using something that’s not very good, increasingly dated and incredibly expensive?
Control > compromise
Digital > analogue
Low cost > high fees