The market is rosier for platforms after the ups and downs of 2015.
Last year was one of uncertainty, with rumours of platform businesses up for sale, the dawn of the pension freedoms, a surprise Tory majority, a Scottish referendum and two Budgets.
This year, assets under administration are up, flows to pension wrappers are increasing and we are seeing unprecedented levels of money in flight to outsourced technology solutions.
AUA was up 15.5 per cent year on year, to £351.3bn, at 31 December, a rise driven by two main factors: the pension freedoms and investment outsourcing.
The pension reforms have significantly boosted net inflows, with life company-owned platforms and those with strong Sipp pedigrees among the big gainers.
Investment outsourcing has also been a driver. There are significant advantages for advisers in using model portfolios on-platform. They offer greater control over the client relationship and allow assets to be moved between model portfolios more easily. For platforms that successfully pursue this strategy, it is a driver of asset growth. But it is having a much more limited impact on total market assets than the pension freedoms.
After a dismal third quarter in 2015, adviser platforms saw a 7 per cent return to AUA growth in Q4.
This growth has been supported by slightly better performance in capital markets in the final three months of 2015. The FTSE All-Share index grew, albeit only by a limp 2.6 per cent.
The pension freedoms made saving into a pension wrapper much more appealing and this has resulted in a flow of assets into pension wrappers on platform. In the fourth quarter, two-thirds of platform net flows went into pension tax wrappers.
Looking at quarterly net flows into pension and Isa tax wrappers and unwrapped products over the past three years, sales into pension wrappers doubled in H2 2014, peaking at £4.5bn with steady flows of between £3.5bn and £4bn continuing through 2015.
“The pension freedoms have resulted in a flow of assets into tax wrappers on platform”
In contrast, Isa net flows have maintained a much steadier trajectory with spikes coinciding with the Isa season.
The overall platform tax wrapper split now puts pensions at just over 50 per cent, Isas at 25 per cent and unwrapped at 19 per cent, underscoring the impact of the pension freedoms on the make-up of platform assets over the past two years.
Looking ahead, we see platforms facing a cost-service conundrum. Interviews with advisers reveal that although they are unlikely to transfer assets away from platforms without good reason, they are moving assets if it is right for their clients.
The top reason cited by advisers (55 per cent-plus) for transferring assets away was service.
This was followed by usability, functionality and then charges. When we ask advisers their ‘top five musts’ for the perfect platform, low charges top the list.
Service is about getting it right most of the time, and when things go wrong, making sure there is someone at the end of the phone to help sort things out. Maintaining great service results in higher platform charges to the client.
This in turn affects advisers’ inclination to place new assets on the platform.
To strike the right balance, platforms need to bring down the cost of delivering good service. Upgrading technology should help lessen errors and improve automation and efficiency.
As one wise platform boss commented, the best user experience is one where you don’t need to speak to a person at all because everything works intuitively.
For many platforms, this nirvana is some way off. While technology is being upgraded, and some firms are re-platforming, existing infrastructure is not being invested in. Interim investments in call-centre and operational staff could well pay off in the near term.
Miranda Seath is senior researcher at Platforum