Just as 2001 was the year that platforms really took off in the UK, 2021 feels that it really is the year that platforms will do likewise in the offshore markets.
Until 2000 the UK retail investment market was dominated by life companies – almost all of which have now disappeared or have had to change their businesses towards platforms, writes Steve Andrews, managing director at Novia Global.
But what life companies traditionally had in common was a ‘one stop shop’ of administration, investment, and paying advisers to market their offerings – which brought conflicts of interest to advisers and many were uncomfortable with.
Unfortunately, what also characterised them was limited, in-house investment choice, poor administration and opacity with the result that investors got a very poor deal and advisers were reliant upon them not only for the client outcome, but also for making a living through the payment of ‘commission’.
International transition
On the opposite end of the spectrum, platforms deliver a much more efficient business solution through the use of technology, a market wide investment choice, the ability for advisers to set their own rates of payment and, most importantly of all, transparency, which is at the heart of a good outcome for investors.
Also, just as in the UK, offshore advisers are having to change their business models away from an inefficient transactional initial commission model and dependency on life companies into a much more sustainable service model where they are able to set their own charges for the advice supplied and deliver a better outcome to their customers.
Transition from one model, which is reliant on money up front, to one where payment is payable over the lifetime of the customer relationship for on-going service, is financially painful in the early days as the challenge of cashflow bites, but that transition is now well underway in the offshore markets and the destination inevitable.
Paperless models
One of the big drivers of change has undoubtedly been the arrival of technology in offshore platforms.
Up until very recently, platforms active in the offshore markets have operated largely on a paper-based model where the operational efficiencies that a platform can provide have been absent.
But the days of the post and faxes are nearly over and we are seeing a number of platforms invest in technology that will transform the market. The platforms that do invest in technology will be the winners and those that don’t just won’t exist in a few years’ time.
We are seeing the transition away from a cottage industry towards professional scale businesses.
At the same time, as advisers are beginning to appreciate the benefits that technology-enabled platforms are bringing to their businesses, we are also seeing regulatory pressure increasing globally in a move for more transparent Retail Distribution Review-style (RDR) advice processes that are more easily achieved via a clean share class proposition on platforms, with 24/7 client online access and visibility.
Rise of the Sipp
The recent Financial Conduct Authority (FCA) bulletin on the use of investment bonds inside pension wrappers will deter advisers from selecting this once popular, indeed ubiquitous, option.
For UK expats, evidence already suggests advisers prefer a platform Sipp proposition. Other providers in this space are now opening up the market on a similar basis, clearly demonstrating this is the way the market is heading.
Large back books of outdated bond business are now being migrated by advisers to platforms in order to enable advice firms to afford their ongoing advice process while, at the same time, offering their clients a more cost effective basis with the use of platform clean share classes.
This move is underway and inevitable. To add to this, clients are now more savvy than ever and can easily undertake on-line research and can tell if advisers are doing what is best for them.
Increasingly, as they Google, they will see platforms getting more positive feedback and other commission-style products receiving negative feedback.
Centralised investment solutions
We haven’t seen the widespread adoption of centralised investment propositions (CIPs), which is practically universal in the UK and greatly facilitated by platforms, but this will inevitably follow soon.
CIPs tend to follow two routes, either advisers build their own models or they outsource them to a discretionary fund manager (DFM).
Either way, the solution is easily managed through the use of a platform and what works to the advantage of the client and adviser is that if a DFM under-performs, the adviser can sack the DFM firm and replace it, literally at the flick of a switch, with another firm.
We really are on the cusp of change and, in fact, it really is happening already. 2021 will be the year that the old opaque model is replaced by a better solution for advisers and their clients.
This article was written for International Adviser by Steve Andrews, managing director at Novia Global.
