The amounts of money now involved in 'replatforming' are astonishing and, warns Tim Sargisson, it would be a mistake if advisers saw this only as a problem for providers and not for themselves and their clients
Am I alone in wondering if an unintended consequence of the 2008 financial crash is that we have become anaesthetised to big numbers?
I suppose everything else these days seems like loose change when one considers that £124bn was provided in the form of loans and share purchases, which required a transfer of cash from the Government to the banks. Maybe this helps to explain the collective torpor of advisers in regard to the world of platforms and technology.
I am prompted to write this because Old Mutual Wealth announced earlier this month it was dropping IFDS as its technology provider to start working with rival technology firm FNZ instead. The sunk cost in this volte face amounts to £330m, which represents the amount spent on the IFDS replatforming project to date.
Lang Cat principal Mark Polson has called the sums involved in this project "eye-watering" and estimates that, based on Old Mutual Wealth's own cost predictions, the replatforming cost so far for each customer is in the region of £800.
Meanwhile, according to a Finalitiq report, the total cost of replatforming for at least six platform providers is expected to be more than £828m,with almost £200bn of assets in total to transfer as a result of their change in technology,
The question we have to ask as an adviser is, ‘Does it matter?' and the answer of course is, ‘Yes'. I worry, however, that we see this as a problem for the providers and not for ourselves and our clients.
But ask yourself this - why else did the FCA recently hold meetings with a number of platforms over fears replatforming projects could cause customer detriment? Why else has the regulator announced plans to review the platform market to gather whether it is performing for consumers? Why else has it blamed "poor competitive pressures" from advisers, which has led to "clustering" of prices in various areas of the platform sector?
Platform land should be one where ‘he who pays the piper calls the tune' - but there is an awful lot of noise out there because there are an awful lot of pipers blowing away. Platforms bend and sway in a bid to satisfy advisers and boost distribution - More boutique funds? ‘Not a problem.' More investment tools? ‘Certainly, we can manage that.'
Lack of objectivity
With all that noise, a number of platforms appear to lack the objectivity to undertake a simple cost benefit analysis and everything required or demanded by the adviser ends up in the providers ‘to do' hopper in the insatiable desire for more ‘AUA'.
This is why it matters - because clients pay for all this, including all the tools and the funds you and your clients don't want and don't need. If you believe providers will pick up the tab for all the replatforming work and everything else, remember - providers do not do this sort of thing out of a sense of altruism, they do it for profit. Or, in one high-profile instance, they pull down the shutters because they get a better return on their capital elsewhere.
So when the FCA says in its business plan "We will conduct a market study to explore how ‘direct to consumer' and intermediated investment platforms compete to win new and retain existing customers", it is recognising platforms have buying power and ‘skin in the game' to put competitive pressure on asset management charges and reduce prices.
Ultimately consolidation should lead to downward pressure on platform prices as large players build scale, which allows them to undercut rivals - but, from its business plan, it appears the FCA is not hanging around for the market to make up its mind.
Tim Sargisson is chief executive at Sandringham Financial Partners
Read all of Tim's columns for PA here
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