Ola Abdul: To switch or not to switch platforms? That is the question

For generations, choosing a current account was akin to choosing which football team to support. You picked once and stuck with it - and, while many may have spent a lifetime rueing their choice, switching was unthinkable.

Until 2013 that is, when the Current Account Switch Service was introduced. Since then more than four million people have successfully switched current accounts, with the scheme simultaneously offering greater choice to consumers and injecting transparency and competition into the market.

Clearly, of course, the investment management market is much more complex than the relatively commoditised world of basic bank accounts. MiFID II has gone some way to making the industry more transparent in its day-to-day operations, but if we start from the principle that choice - and the freedom to change - are good for clients, investment management still has much to learn from other industries.

Let's look at two sectors where switching has become part of the fabric of the market. For all the talk of the dominance of the ‘big six', the energy market is a hotbed of competition. With the government urging consumers to switch regularly to reduce their bills, scores of switching services - and the providers themselves - have responded by making switching effortless.

Meanwhile in retail banking, shop around and you will find no end of incentives to switch current account - from joining bonuses to competitive interest rates - with the process of switching made effortless and free by the aforementioned Current Account Switch Service.

In contrast, switching remains relatively alien to investment management. In part this is due to the rigidity of the industry and the services it provides - and yet the simple fact it has always been this way does not mean it needs to be forever thus.

This is not to suggest there is a lack of competition. A casual glance at the number of investment management platforms open to financial advisers will quickly dismiss that notion. The real issue is that benefits associated with competition cannot be fully realised under the current system.

Put simply, switching between platforms is unnecessarily difficult - not least because of the administrative burden the switching process currently places on advisers.

It is also, however, because comparison is difficult as different platforms offer wildly different benefits. To borrow a cliché, not all platforms are created equal. Some allow the end-client to view their investments in real time, some have superior onboarding techniques, while others keep their fees very low.

Ultimately it is the end-client who is most affected by not being placed with the right platform and here's the rub - they seldom have much of a say. Yet gone are the days where clients were investing money but were not invested in the process. Today they are more informed, more engaged and want to know how they are maximising the value of their proposition.

In this age of the robo-adviser, it is crucial that discerning clients are shown the benefits that investing through a financial adviser can bring. Expert advice is a given - however, the smart use of technology to make the entire investment process more intuitive, while also bringing down costs, is not.

Better outcome

The truth is, in many circumstances, advisers can demonstrate better value to their clients if they switch platforms. While of course investment performance can never be guaranteed, the efficiency savings achieved through the use of better technology can be passed onto the client - which does, in effect, guarantee a better outcome.

Let's use an example of a £100,000 lump sum investment over a 10-year period, assuming an annualised 5% return. After 10 years, the value of the investment without fees is just under £163,000. With a 2% annualised fee, that falls to £133,000 and yet, if that fee is cut by just 0.5%, the value rises to more than £140,000.

This means happier, wealthier and longer-term clients - which is good for everyone.

The Financial Conduct Authority knows there are problems with switching and will soon deliver the findings of its Investment Platforms Market Study. Let us all hope the regulator draws inspiration from the Current Account Switch Service and take steps to make the whole process easier and quicker - as this will benefit both advisers and their clients.

Ola Abdul is CEO of Fundment, an automated platform for IFAs

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• Topics
• Wrap/platforms
• switching
• Fundment