Advisers should carry out a full platform suitability review following Standard Life’s purchase of Axa Elevate, experts have claimed.
The deal sees Standard Life buy the Elevate platform from Axa, for an undisclosed sum of money. But with very different pricing models and offerings, the move may mean advisers have to re-assess their platform choices.
David Ferguson, chief executive of Nucleus, says the move affects both advisers who have recommended Elevate and those that have recommended Standard Life’s wrap.
“Standard Life is materially more expensive than Elevate at every portfolio size and that raises an interesting question for the adviser on both sides. If you’re an Elevate user and the price goes up then you obviously end up with clients paying more, but equally if you are a Standard Life user then other clients on the platform are paying a lot less,” he says.
Mike Barrett, consulting director at lang cat, says that the low cost of Elevate makes it harder for advisers to recommend a move away from the platform.
He says the conversation will mean advisers having to charge clients to cover the cost of a review, while likely recommending a more expensive alternative platform. “I don’t think many advisers want to have this conversation,” he adds.
Of particular focus in any suitability review should be the financial stability of the platform, says Abraham Okusanya, founder of Finalytiq.
“When it come to selecting platforms, financial stability trumps virtually everything else. And that isn’t the same as the strength of the parent company. For us it means that the platform proposition stacks up on its own,” he says.
“The financial performance of platforms is crucial and should play a key role in adviser due diligence and selection because deep pockets of a parent company just aren’t enough. The fact is, big providers with deep pockets won’t continue to fund loss-making platform subsidiaries forever.”
Mark Polson, founder of lang cat, says that for many advisers it will not be economically viable to do a platform suitability review. “Not that averages are a great guide, but the average per client pot on Elevate is £61,000 or so. Unless the client will pay a fee for the review, I’m not sure advisers can justify the expense,” he says.
Axa says its preferential pricing deal for its Architas asset management arm will remain in place for the Elevate platform. Cedric Bucher, head of Architas UK funds, says that it will also transition that pricing model to the Standard Life platform to “minimise disruption”.
“The superclean share classes for Architas funds will continue to be available on the Elevate platform following any transaction. Standard Life and Architas have also agreed to start the process of adding these same superclean share classes on the Standard Life Wrap, ensuring this preferential pricing for Architas funds is consistent for advisers across both platforms,” he says.
However, Ferguson is sceptical this is a long-term deal. “I would imagine it is a temporary arrangement for one or three years. It’s hard to believe it is a 10-year deal.”
Okusanya agrees, saying that Standard Life will want more of the platform assets to flow to its own asset management arm.
“When the dust settles I think that’s going to go. I would put a bit of money on that.
“Standard Life is pretty ruthless on competitors so I don’t see why it would be paying for its competitor’s business by offering these discounts on its own platform when it’s got funds that it believes are a better proposition.
“In all of this Standard Life has been very clear that it wants to be a fairly vertically integrated business and most of the money being made in Standard Life Wealth is being made by the asset management business and MyFolio.”
The loss of this preferential pricing would present a large difference in cost for the platform users, prompting another reason to re-assess suitability.
Suitability is in the spotlight at the moment, following the FCA’s recent thematic review into platform due diligence, which took an in-depth look at 13 advice firms. The FCA said that adviser platform due diligence was “inconsistent and insufficient” at some firms.
Barrett says the key for advisers is to monitor how Standard Life plans to integrate Elevate into the business, and how any integration will be executed, “but at this stage I don’t think moving assets away is appropriate”, he says.
“I think this is a really difficult area for advisers to be considering. I don’t think they should panic, but also a head-in-the-sand approach is not appropriate. Standard Life should be clearly communicating to all advisers what is happening, and if they are not advisers should take this as a bad sign,” he says.