The financial advice market was shocked when Praemium International was sold to Morningstar for £35m ($46m, €42m).
It was not the buyer that many in the industry had expected.
But Morningstar does not believe this should be the case and is ready to expand its offering to financial advisers – and saw Praemium as a great business to help do this.
Daniel Needham, president of Morningstar’s wealth management solutions business, told International Adviser: “Our strategy is to embed Morningstar’s unique insights and investors first solutions into the advice workflow and the investor journey. That’s the strategy for the wealth group.
“When we look at the UK market, we think the advice industry is and will continue to be an important industry.
“We feel like the number of clients, the number of assets and the elements of delivery are going to increase per adviser. When we look at that, we realise that technology is going to be really an important enabler to the advice workflow, and we think companies like Praemium International with their platform technology and CRM technology are really going to be critical parts of that.
“We think it’s a really good business as well, we think they’ve done a great job establishing themselves in the UK, and in the offshore markets. We think they’ve got high quality technology, but also great service, they really focus on their advisers.
“We do enter the platform space in the UK, but we have a platform in the US called a turnkey asset management platform (Tamp). We’re familiar with platforms.”
Competitive UK platform sector
Praemium International is a big name in the offshore market – but was growing well in the UK before its sale to Morningstar.
The UK advice industry does have a lot of platforms in the market – does Morningstar think it is too competitive?
“Our thesis is that the DFM market is a growing market,” Needham said. “We think discretionary portfolios are going to become more and more important and we view that segment as a growing segment in the marketplace.
“Generally, we think the platform market’s going to continue to grow, as the number of assets that advisers advise on grows, and we think the demand for advice is not going to be declining, we think it’s going to be continuing to grow. There’s a number of positive trends at play that mean it is not a zero-sum game, where you just compete for market share.
“We view it as an attractive market to participate in and we view Praemium’s offerings in the UK market as very compelling and very competitive. We’ll be continuing to invest in the business and allowing them to have a really good runway in the UK market.”
International platform market
Needham said that the UK is “the core focus” for Morningstar but the offshore space is “a really attractive market” for the business.
He added: “It’s not as big a market, but we think Praemium has a really compelling proposition for advisers that are operating in those offshore markets and we will continue to support that.
“We’ll do more work on those markets and see if there’s more we can do there, and potentially other markets. I think having capital to invest and support their strategy is going to be really important.
“We’ll see what’s out there, but we based off our analysis of it, it seems like a really attractive market and there are clients out there that need advice, and they need cost effective solutions. We think that Praemium has those available. I think there’s a number of potential opportunities for us. Anywhere where there’s an independent or a fee-based advice community, we think there’s an opportunity for us to help them.
“We’ve got a footprint in South Africa and a small footprint in India, where we’ve made some early investments. They’re probably top of the list to continue to focus on. But the solution we deliver in each of those markets is going to be dependent on the opportunity where we think we can do something different and add value for advisers.
“We’re not there to just launch the solutions and compete with already established players that are doing a good job and delivering services at value for money prices.”
Global wealth operation
Just after the Praemium International deal was announced, Morningstar created a business unit focused on the wealth management market.
The wealth management solutions group unites several Morningstar’s businesses, including managed portfolios from Morningstar’s investment management group, portfolio management software Morningstar Office, investment data aggregator ByAllAccounts, and the individual investor offering.
Once the deal is complete, Praemium International will fit into the business unit.
Needham explained the reasoning behind the global wealth operation.
“We’ve had a lot of offerings that are focused on the adviser market around the world,” he said. “The more that we can bring pieces together within one group, the more that we can start to meet advisers globally. When you’re in different regions, and you’re in different business units or product areas, you don’t get cross collaboration and innovation.
“There’s a benefit of having the different pieces together and having the leadership team overseeing the wealth propositions in the different markets. I think you’re able to identify common themes, spot patterns and develop strategy in that way.
“Also, scale is important. When you think about how you invest in the market, having more scale is going to be really key for us as we look at that. Bringing them together just made sense. In the US, that’s a big market for us and we think there’s an opportunity to deliver a more comprehensive suite of wealth management solutions.
“It’s exciting to be looking at businesses like Praemium International, and what they can bring to the group and what we can bring to their clients. The UK is early days for us, we’ve got more work to do.”
Future
Needham was asked about his five-year plan for Morningstar, and he said that he wants to “serve many more advisers and ultimately empower many more investors”.
“Advisers vote with their feet,” he said. “If you’ve got a compelling proposition and you’re solving problems, then you’ll have more advisers and you’ll have more clients and you’ll be helping more investors. For me, that’s going to be the test. I don’t have a fixed view on exactly what the solution is going to be because I don’t know.
“We’ve got our solutions now. We think the platform, CRM, investment planning, insights and investment solutions will be key. Bringing all these together to be able to deliver for advisers is going to be key. I’d love to see us working with multiples more advisers in a decade from now than what we are today.”
