With a number of large re-platforming programmes in-flight across adviser platform land, we have witnessed a recent slowdown in proposition development as platforms focus on creating a scalable foundation for future growth. At times, this has led to discontent among adviser firms frustrated by the impact this has on service quality and their ability to innovate in line with the evolving needs of their clients. This, combined with a flurry of consolidation activity in the advice market, has led to a notable shift within the UK market as intermediaries (particularly larger ones) grapple with their future platform strategy. We are witnessing more advisers taking control of the proposition by implementing or considering white-labelled platforms as an option within the spectrum of potential options available to them. However, do the benefits of these models outweigh the operational and regulatory hurdles?
In this article we examine the ‘adviser-as-platform’ model in more detail.
Benefits of Operating Your Own Platform
Operating a platform comes with a level of overheads – so why is it that advice firms are choosing to take on this additional responsibility?
- Control of the proposition – The model allows advice firms to take control of the platform proposition, development and customer experience by designing a tailored proposition that meets the specific needs of their customer base.
- Flexibility and Efficiency – The model enables flexibility, allowing advisers to integrate other software to their core technology stack to achieve greater efficiencies. This has become a priority for many advisers, with over 34% of adviser firm respondents to the Alpha FMC Financial Advice Survey (January, 2023) citing “technology integration” is where they see the biggest opportunities for their business in the future. However, it’s important to consider that for smaller to mid-size firms, who often don’t have dedicated change or technology capabilities to enable and deliver integrations, there is potentially less to benefit from.
- Revenue – The model enables advice firms to determine the platform pricing structure, and therefore receive a revenue share. Whilst adding an additional income stream is beneficial, advice firms, particularly advice firms looking to define their future growth strategy, should bear in mind the additional overheads and resultant narrow margins that operating a platform brings. A reality evidenced by downward fee pressure and market estimates that platform fees will almost halve in the next five years.
The decision to operate a platform is a significant one and will not be right for every advice firm. Before making the jump, advice firms should consider the numerous regulatory and operational complexities that come with operating a platform and consider the full spectrum of alternative options and models available in the market.
Complexities of Operating Your Own Platform
Advice firms require several additional FCA permissions to operate a platform including, but not limited to, permissions to arrange the safeguarding and administration of assets and to deal investments as agents. Advice firms will also battle with the additional compliance and governance-related activities that platforms are subject to – for example, regulatory reporting and 3rd party oversight of platform services.
From an operational standpoint, adopting the adviser-as-platform model is likely to require firms to re-purpose their existing support staff or create a distinct platform capability within their existing operating model. This will be required to enable the administrative and customer service activities that would’ve otherwise been taken care of by the platform. The resultant increase in overhead costs in tandem with the thin margins delivered through platform operation mean that scalability is essential for success if venturing down this route.
Making the decision to build a platform is the first of many challenges for advice firms wishing to embark on their journey to operate a platform. To truly reap the benefits and scale that come with operating a platform, firms need to transition assets away from existing platforms on to their own. This is no easy undertaking given the large variety of platforms most advice firms use and the operational overhead of transitioning assets safely for clients. Pair that with the additional task of obtaining client consent, and transitioning client assets quickly becomes challenging with the benefits becoming harder to unlock.
Conclusions
Is operating a platform as simple as it seems? Launching a platform via a technology provider can be straightforward however, integrating and scaling a platform requires change capability resources and investment to make the most out of the potential opportunity. Therefore, we believe that some advice firms will be better positioned than others to benefit from adopting the adviser-as-platform model and ultimately, decision depends on the firm objectives. There isn’t a ‘one size fits all’ approach here and sometimes differing levels of white-labelling can satisfy a firm’s appetite for control of their platform proposition and experience, without the regulatory and administrative responsibilities of running a platform.
What we are seeing is an emergence of competition in the platform market at all levels; from the infrastructure through to retail adviser platforms. This competitionwill ultimately provide the market with more options and create a need for great innovation -driving benefits for advisers and clients in the future.
How can Alpha Help?
We’ve been working with a number of firms considering operating a platform, helping firms define and implement their platform strategy, proposition and optimise operating models in order to support the platform, and we’d be delighted to share some more of the insights we’ve gained. Please contact Alpha here if you would like to learn more.
About the Authors
Bradley Northrop
Director
Bradley leads Alpha's Retail Distribution and Advice practice, supporting clients to assess their biggest challenges and implement solutions to improve business performance. Bradley has extensive experience in Retail Distribution, Platforms, Financial Advice and Wealth Management supporting a range of business change initiatives
Duncan Ng'enda
Associate Director
Duncan is an Associate Director at Alpha with over 9 years experience working in financial services across Retail and Investment Banking, Wealth and Asset Management, and Insurance. Duncan specialises in business and technology transformation and has extensive knowledge of the UK platform market, leading projects in cost optimisation and digital transformation for several clients.
Jake Reed
Manager
Jake is a Manager at Alpha FMC with a broad range of experience across the platforms, pensions and retail investments sector. Jake has experience working on large scale platform transformation programmes and has first-hand experience delivering propositional, regulatory, operational and technology projects across various platform propositions. Jake recently delivered an enterprise platform solution with a national financial advice firm, covering technology implementation, operational readiness and regulatory compliance.
Malak Hassaballa
Analyst
Malak is an Analyst within Alpha’s Pensions and Retail Investments practice, with experience in complex transformation programmes within the platform market. Most recently, Malak has been supporting a major UK platform business undertake a significant platform implementation as a programme analyst, playing a key role in supporting the project team produce deliverables.