Towers Watson

Administration Seminar

By Chris Read

Chris Read gives his predictions for how the platform world will be 10 years from now

Judging by the level of migration of assets onto platforms in recent years and the spiralling number of platforms and products offered on platforms, then they must be said to be in rude health. Open, or unbundled, wrap platforms in particular have positioned themselves as the lightning rods for the changes which the Retail Distribution Review (RDR) is anyway forcing on the IFA industry. Reluctant ‘semi-bundled’ life office platforms and previously fully bundled fund supermarkets, as well as many advisory firms, are being dragged kicking and screaming into the RDR-branded light.

Assets held in platforms have been rising consistently since 2008 from £60 billion then to a projected £200 billion by the end of this year (Source: Platforum). That’s a 330 per cent rise in assets on platform, an average of 66 per cent per year. If £200 billion sounds like an awful lot of assets you only have to look at the total asset pool out there to see that there is the strong potential for this platform asset migration trend to continue.

UK pension assets currently stand at £1.3 trillion, while collective investments and ISA assets are £447 billion and that’s before you add in investment deposits (perhaps £500 billion) and life assurance products (£1 trillion). So potentially there is a £3.3 trillion asset pool up for grabs (Source: Navigant). If this is so, platforms have so far grabbed only 6 per cent of the total assets which could conceivably be moved onto platform.

So will we see an explosion of new platform offerings to take up the available slack and grab the rest of those legacy assets? Will the 30 or so existing wrap platforms mushroom to over 100? Will we see unprecedented levels of innovation as platforms set their sights on grabbing specific portions of the market?
Some predict a new genre of platform that sits between the ‘full advice’ offerings of the wrap platforms today and Direct to Consumer (D2C) Execution Only platforms. There may also be opportunities to segment the market, aiming at specific types of customers such as the over 50s with a property bias in their portfolio of assets. One suggestion is a segmentation of retirement into phases, aiming services at these stages is conceivable. This would mean a rash of offerings aimed at the early, mid, late and final-retirement as well as the long-term care market.

New entrants may also look wide-eyed at the impact of the much-quoted demographic time bomb. Baby boomers, those born in the huge population bubble immediately after World War II, are already starting to retire, some 70,000 of them in the UK each year and rising. All of them will need to retire by 2030. This group has benefited most from the post-war boom years and now hold 80 per cent of all UK personal wealth. Can they be persuaded to manage their steady decumulation process from a platform as those long retirement years stretch out in front of them?

How can platforms engineer themselves better to support the at- or post-retirement market, especially as on the face of it they are cashing in assets and may well take them off platform as a result? The fact that annuities are not yet available on platform shows how far platforms have to go to address this market.

However, most platforms still see themselves as investment-driven platforms, helping IFAs and customers direct to spread their growing asset-base across a larger range of funds and tax wrappers. They will need to look at the customer lifecycle a little more closely and focus particularly hard on at- and post-retirement solutions now that the pre-retirement, accumulation phase, is well catered for.

We are already seeing a rash of new D2C offerings coming to market from Friend Life’s Planwise as well as D2C financial planning services like Royal London’s subscription-based on line planning tool MoneyVista. There will be many more such innovations from both providers and advisory firms, designed to help generate income from people who do not or no longer access advice. These sites do not sell or recommend products but they do plant the seed for product purchases in consumers’ minds. As such they are an investment for the future.

D2C platforms appear lower cost to deliver and are not as heavily weighed down by FSA requirements when moving assets onto platform. More assets can be attracted much faster if the investment options and relatively sophisticated and wealthy individuals can be reached in sufficient numbers. Hargreaves Lansdown has shown what’s possible, but how many can replicate their success?

There is also strong growth potential for workplace platforms that support executives with more complex investment needs as well as feed into administration platforms to support auto-enrolment for the rank and file. Platforms may also benefit significantly from the flow of assets out of defined benefit (DB) into defined contribution (DC) schemes. Today there are roughly two million UK people with assets locked in DB schemes. That number is gradually eroded each year as DB schemes are migrated to less onerous DC schemes because employers are desperate to cut their pension liabilities. This trend creates a further opportunity for the watchful platform providers.

What is clear from a glance around the retirement and platform market is that much is now in a state of flux hastened by recent seismic changes – not least RDR, auto-enrolment, wider pensions reforms, legacy asset migration acceleration, the demographic time bomb and a recession that just does not seem to go away. But with change comes opportunity for those platforms that are alive to the changing needs of the adviser community and consumers themselves.

The post-RDR adviser is much more of a wealth manager than he is today. He or she will be serving more of those baby boomers entering retirement as well as helping generation X start to seriously plan for it. This trend will create an opportunity for a new breed of platform offerings that are more targeted to segments of the pre, at and post-retirement markets. Financial advisory services will add much more value to customers who can afford them than they do today. A combination of the platform revolution; supported by the application of technology and systems to automate administrative tasks; and RDR will see to that. D2C platforms also stand to enjoy a bright future if they get their targeting right and can stay on the right side of the regulator.

In summary, despite - or perhaps because of - all the macro changes affecting the industry, I believe there is space for established wrap platforms, D2C players and workplace pensions providers going forward. But they can also expect to be joined by new platforms and services providers as niche opportunities are identified and addressed.

Written by Chris Read, chief executive at Dunstan Thomas

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