Too big to fail: Is platform tech about to crumble?


The limited number of technology providers dominating the platform market have raised difficult questions over whether the firms powering platforms are becoming “too big to fail”.

Figures from Platforum show 84 per cent of platform assets are expected to be held on platforms backed by just four technology firms by the end of 2018.

Last week saw Standard Life agree a deal to acquire Axa’s Elevate platform, a move set to bring even more business under tech supplier FNZ.

This came just weeks after the firm was bolstered by Aviva’s decision to move its own advised platform onto FNZ, bringing it in line with its non-advised offering, as well as those of its 2015 purchase, Friends Life.

Experts say the consolidation of the market is a result of the increasing complexity of regulatory compliance, and a sign of just how much platforms have become a commodity.

The Lang Cat principal Mark Polson says: “The driver behind this is the same as anything – can someone else do it cheaper and better?

“There’s an emerging understanding that the platform is more and more of a commodity. Whether it is proprietary or from another firm, it all has to do the same stuff, and most of them do that in different flavours.

“At the same time, firms have had to keep up with the pace of regulatory change. There’s a number of really big pieces that you have to do just to stay in the game.

“But the nature of that stuff makes some firms say they just don’t want to have to think about it any more, and they start to ask if they can find a place where any big regulatory changes that come in will be dealt with for them.”

But will the low number of technology providers put the platform market at risk?

Do advisers understand those dangers when choosing their platforms? And could there be a sting in the tail from the latest deal to hit the market?

Lowest common denominator
While the FCA does not directly regulate technology providers, it says the infrastructure supporting the platform market is a “perennial consideration”.

The regulator considers the reliability of platforms as part of its authorisation process, but says it the responsibility of the firm to ensure that technology is fit for purpose, whether it is outsourced or not.

An FCA spokesman says: “Firms should have technological systems that are appropriate for their business, including continuity plans to ensure they can continue to serve clients if things go wrong.

“When firms outsource they should take reasonable steps to minimise the risks involved. As part of our normal supervisory work we have a continuing dialogue with firms about their technology and its reliability. As part of our ongoing supervision we also look at wider sector risks. We will continue to review the effectiveness of the technology used in the sector.”

Finalytiq founder Abraham Okusanya suggests it might be time for the regulator to become more actively involved in the market beyond asking platforms to put contingency plans in place.

He says requirements to have processes to wind down their operations when going out of business are the lowest common denominator as a necessity of regulation.


He says: “The challenge here is the underlying technology providers aren’t regulated for the most part.

“Parts of them might be, but for the most part, they’re not. So most of those questions platforms are required to answer aren’t there for tech providers.”

Okusanya notes a cyber attack on a technology provider could, at present, affect three or four platforms at the same time, and questions who should be investigating the risks.

He says: “Certainly this is an area that needs more attention, but I don’t know who should be doing this work. I’m not sure it’s for the advisers to have to ask about the tech providers behind the platforms as well as the platforms themselves.

“There’s a responsibility on the platform to do that, and they will argue they are doing that, but I don’t know whether that’s something advisers can bank on.”

Polson agrees: “It’s really important the industry starts to look at the health of the underlying things that make it function.

“If you have all this money sitting on these systems, why shouldn’t the regulator be treating them as a risk of potential detriment as well and shouldn’t those tech firms be starting to feel some of that pain?

“It’s not just communications hardware at this point, they are an integral part of what is going on.”

However, Altus director Kevin Okell says: “This is the same as any industry. There probably aren’t that many software providers that run nuclear power stations either.

“It’s a logical consequence of specialisation. That also keeps costs down and it improves quality.

“The quality of these things and reliance on them needs to get better, and you can debate whether they are ready right now.

“But the stuff where there is a concentration risk, and a stability risk to the market, are actually the more solid parts of the model in the back end that these firms have been doing for years, like aggregated trading.”


Aviva told Money Marketing it maintains “robust” contingency plans for a range of scenarios, and Standard Life head of adviser and wealth manager propositions David Tiller adds his firm maintains a close relationship with FNZ for exactly this reason.

Tiller says: “Developments are a collaboration between our proposition experts, Standard Life IT and FNZ with thorough testing taking place in both FNZ and Standard Life. In many ways, the way we operate allows us to get the best of both worlds, bringing internal and external expertise to bear as appropriate.

“We conduct thorough ongoing reviews and diligence on FNZ, including financial accounting information, and monitor platform performance closely. This includes building a deep understanding of FNZ’s disaster recovery protocols, so we can be confident that service will be maintained in extreme circumstances.

“In the worst case scenario this includes ‘step in rights’ where Standard Life would take direct control of all FNZ-run Standard Life platform services. However, I am confident we would get early visibility of any emerging issues at FNZ and therefore could take action to resolve these issues well before this became a necessity.”

Musical chairs

Advisers remain concerned about what the Elevate deal might mean for them.

Wingate Financial Planning director Alistair Cunningham says he has clients on both Standard Life and Elevate, but is concerned the deal will see previously distinct offerings lose their individual merits.

Cunningham is also cynical about Standard Life saying no decision has been made on whether the two platforms will continue to run as distinct offerings.

He says: “If Standard Life decides to make Elevate look exactly like Standard Life in terms of costs or anything else, then that would be a mistake.

“We use both for very clear reasons. I like Standard Life’s approach to customer service, and Elevate seems more integrated in terms of technology. Those things are priorities for different customers, so if they get thrown out then we will have to think again.

“Our main issue worry is whether Standard Life has got preconceptions of what clients and advisers want.”

In February, the FCA highlighted poor practice examples as part of its due diligence review where firms were “retro-fitting” due diligence documents to justify decisions on platform selection.

Octagon Financial Services director Adrian Hill says the deal will require more work for advisers to be able to maintain the suitability of their platform recommendations.

Octagon is part of the Personal Touch network, which uses a platform panel of Aviva, Old Mutual Wealth, FundsNetwork and Elevate.

Hill says: “In time it might work out better for us as a business, but it does put a lot more work on the adviser market.

“We have got to explain to all our clients what is going on, what is going to happen to their money, what is going to change and how it will affect them.

“Then you have the issue of the changeover, I don’t know how that will work but I’m hoping that there will be strong communication that will help support that change.”

Thomas and Thomas director Darren Lloyd Thomas says advisers are right to ask questions, particularly in the context of Standard Life’s recent efforts to build up its own restricted advice arm through 1825.

The advice firm has acquired Almary Green, Baigrie Davies and Munro Partnership all in the last two months.

Lloyd Thomas says: “Eventually, any life company will notice they have all these clients, and on a platform it’s very unclear as to who legally owns them because the platform could have just as much right as the intermediary.

“So it is just a matter of time before they say ‘there is X number of clients that haven’t been seen by an adviser for two years, let’s directly market to them.’

“And you can bet your bottom dollar that 1825 will be a hell of a good salesforce.”

Lloyd Thomas adds the collective result of the Elevate deal, Aviva’s replatforming and the ongoing saga over the acquisition of Cofunds will be an advice market increasingly wary of change.

He says: “For financial planning firms at the moment adopting a platform is a little bit like a game of musical chairs. You just don’t know when your’s is going to be hit. And a lot of advisers are quite nervous about it.

“To be honest, I don’t think anywhere is safe from that.”