Jeremy Mugridge, platform marketing manager for Skandia, looks at where adviser demand for platforms will be focused in the coming months.
The future for platform business is looking bright. According to a recent survey of over 200 financial advisers conducted by Skandia, nearly two-thirds expect to do more business on platforms over the next 12 months. The survey also showed that this increase is primarily driven by the benefits of consolidation, cited by 85% of advisers, and improved business efficiency (84%).
Consolidating investments into one place is one of the easiest ways to gain control and ensure they are monitored and managed effectively. Platforms are an ideal aid to this process because they provide the tools an adviser needs to efficiently identify their clients' attitude to risk, build a suitable portfolio to match that risk and then monitor the portfolio over time.
The research also suggests that platforms have made significant progress in the support they provide to financial advisers. Seventy-one per cent of respondents said improved service offerings from platform providers and the availability of better online tools were key factors in increasing platform use.
This research is further evidence that the tools and technology offered by platforms are helping advisers change the way they conduct much of their business. Tasks that were previously carried out manually, and were therefore time-consuming and expensive, can now be carried out online with a few clicks.
For platforms in the future, it is clear that continuing to develop highly efficient technology that complements the advice and service proposition will be key to thriving in the new regulatory environment. For advisers, the challenge is how they can integrate these offerings into their business in the most appropriate and efficient way. And it is clear that when it comes to advice, one size does not necessarily fit all.
Under the RDIP proposals, the relationship between providers and advisers will fundamentally change. Within the fund platform and wrap market there are currently two main ways that advisers can get remunerated. The first option is to receive provider commission for distributing wrappers and/or funds and the second is to charge a fee and offset that cost by reinvesting the commission that providers pay back into the client's investment. Both approaches will cease post-RDR, as it will no longer be possible to pay commission even if passed back in full to investors. Instead, products will be presented without loadings for commission and advisers will agree their charges directly with clients.
So for platforms, the major area of potential added value to adviser businesses is likely to be the extent to which they can expand net adviser margins by increasing business efficiencies and reducing operating costs. Regulatory guidance makes it clear that assessing attitude to risk and matching asset allocation should be the foundations of providing investment advice. The investment strategy adopted by advisers to achieve this could play a significant role in minimising costs and driving efficiencies.
There is a direct link between the investment strategy adopted for a client or segment of clients and the costs of providing this advice.
There are principally three options when it comes to investment strategy - 1. packaged investment solutions such as risk rated or MultiManager funds; 2. pre-defined portfolios; 3. bespoke portfolios. The costs of advice when using packaged investment solutions will be significantly less than that required to build a bespoke portfolio.
Advisers have a great deal of choice in the market today and they need to determine what strategy is most appropriate for their clients and for their business. For example, while risk-rated portfolio solutions will not be suitable for all, it is possible to see how such propositions could help some advisers minimise costs and manage compliance risks in the approaching regulatory framework.
This is achieved through a fully integrated process ensuring that funds are managed in line with attitudes to risk and that the advice provided is consistent and effectively discriminates between customers.
Where a more bespoke approach is appropriate, the extent to which the technology of the platform (through sophisticated risk profiling and fund selection tools) complements the advice and service proposition of advisers is crucial. This will impact on costs incurred by advisers and will be the key determinant of net margins.
Platforms offer the potential for new levels of efficiency in adviser businesses, and all the indications are that platform business can only expand. The challenge for the future is how the industry can make best use of the technology available, improving outcomes for all.
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