As the UK continues to be afflicted by a multitude of ills including the lingering pandemic and energy supply crisis, the advised platform sector is in rude health. Petrol may be in short supply but the platform market is motoring ahead like never before. New adviser-centric business models, pandemic-fuelled advances in tech and the increasing trend of platforms offering their own investment propositions have catapulted the sector to a new level.
Adviser platforms have used the pandemic to reinvent themselves and are now reaping the rewards. CoreData’s 2021 platform study shows advisers are engaging more with platforms and conducting more business through them. Stronger expected platform flows, higher usage figures and an increased appetite to use multiple providers underscore the healthy state of play.
CoreData’s annual study consistently demonstrates that a year is a long time in platform world. But the last 12 months or so have borne witness to transformative changes which have seen platforms take centre stage and dominate the trade press headlines. Much of this has been down to a period of frenetic M&A activity which underscores the health and vibrancy of the market.
The burgeoning sector has seen UK platforms become prime targets for private equity players who tend to recognize a good growth story when they see one. Recent deals have included private equity house Anacap snapping up Wealthtime and Novia, James Hay’s private equity owner Epiris acquiring Nucleus and Preservation Capital Partners buying Parmenion from Standard Life Aberdeen. Outside of these private equity-fuelled deals, M&G completed the acquisition of Royal London’s Ascentric platform and Australia-based Praemium is looking for a buyer for its UK platform.
But in July came the big news that Lloyds Banking Group had acquired Embark in a deal worth an eye-watering £390m. Under the acquisition – the biggest deal for Lloyds since it returned to full private ownership – the bank acquired £35bn of AUM and 410,000 consumer clients. The transaction also saw Embark, which recently acquired the Zurich and Alliance Trust Savings platforms, turn from predator to prey.
The lofty price tag for Embark underlines the pivotal role that platforms now play in the financial services ecosystem as distributors, providers and tech-enablers. Lloyds splashed the cash because it sees Embark as central to its strategy of broadening its distribution reach, enhancing its digital retirement offering and becoming a top player in the D2C and robo-advice space.
But the acquisition is also part of a wider narrative in which banks, which have seen their margins squeezed under rock bottom interest rates, are looking to push into wealth management. With strong AUM growth and recurring revenue streams, the sector represents rich pickings for banks.
The high valuations for platforms also reflect how their business models have evolved. Platforms are fast-becoming the one-stop-shops of financial services. More platforms are now offering investment propositions including model portfolios and discretionary managed portfolios as they become providers as well as distributors. This shift enables platforms to offer multiple services to advisers and capture more parts of the value chain.
The advised platform market has also responded incredibly well to the challenges thrown up by the pandemic. Indeed, the Covid accelerator has powered platforms into a new age. A sector that perhaps arrived late to the tech party is now harnessing technology to broaden its appeal and increase efficiencies across the financial services industry. This goes beyond offering e-signatures — platforms are now supporting advisers with digital transformation and integrating their systems with advice tech including practice management systems.
As platforms integrate more closely with adviser back office and CRM systems, they are also forging new partnerships with advisers through more personalized and tailored offerings. The emergence of adviser-centric models enables advice firms to effectively build their own white label and customized versions of platforms. Long gone are the days of fund supermarkets as we move from commoditization to customization. It is now about leveraging technology to give advisers choice and control.
However, technology is something of a double-edged sword – it is both allowing platforms to serve advisers more effectively and efficiently while also providing the means for advice firms to launch their own platforms. Third party platforms will therefore need to give advisers the ability to take more control over customer relationships. It comes down to providing advisers with everything they need so they don’t have to go elsewhere.
Going forward, this means platforms should look to offer a comprehensive set of tech-based solutions which address key adviser challenges including regulation, compliance and risk management. Platforms will also need to develop deeper relationships with advisers by helping them serve and understand their customers through identifying vulnerable clients and providing educational resources for younger clients.
The future is bright for platforms because advisers are becoming increasingly reliant on advice tech. As platforms continue to help advisers with their digital transformation journeys they will further embed themselves into advice business models.
It’s been a landmark year for platforms but the platform growth story has a long way to run.