The upcoming rumble in the UK platform jungle
With so many players present in the platform sector, some kind of consolidation seems inevitable, since, despite strong growth, there are not enough assets to go around, writes Stephen Wall
The long-awaited and overdue Financial Services Authority (FSA) platform consultation paper has been published and, to the glee of the sector’s lobbyists, the regulatory body held back on its previous promise (read threat) to abolish rebates from fund managers.
From a cost and operational perspective, this is one important debate won by the platforms. However, it is not just regulation that is on the sector’s collective mind.
The platform sector seems to be dropping off every other tongue in the retail financial services sector today, FSA action or not. If ever a sector in this market has reacted to market and client needs through technology and its innovations, and thus been placed right at the heart of the mix for an evolving and change-starved market place, then this is it. Their reward: asset growth rates that make any other business in the private client market weep.
Where is the market now? The Platforum points to 20 platform and wrap providers in the UK market today serving the IFA space and between them administering total assets of £135bn (€160bn) at the end of September 2010. A pretty impressive 31 per cent growth from the £103bn reported for June 2010, but where is the market heading?
Central to this will be the opinion and needs of the IFA community. Critically, in meeting their business goals, platforms are defined as central. Indeed, 95 per cent of adviser firms employ a platform, according to CWC Research.
Under the retail distribution review, though the FSA has stated firms designated independent can use a single platform for “most clients”, the reality is most will consider at least one platform, maybe more. The result, according to Platforum’s estimations, is market growth that will see total assets under administration (AUA) hitting £320bn by the end of 2012.
So who is in this market? AUA is currently divided up between 20 active firms. Two things here are striking. First, the top three – Skandia (£35bn), Cofunds (£24.8bn) and FundsNetwork (£29.7bn) – control 76 per cent of total AUA and all three, perhaps better described as fund supermarkets, reveal strong annual growth rates at 32 per cent, 51 per cent and 35 per cent respectively.
But the smaller and (often) younger providers who have proliferated as this market matures demonstrate freakish growth rates. The highest performers over the last year were Elevate with an incredible 3,000 per cent growth, Nucleus with 146 per cent and Ascentric with 130 per cent.
Is there even space for the 20 provider firms listed? Not to mention the long list of other IT-enabled providers of different varieties and the rumoured entry of majors yet to play their platform hand?
Many of the big players deem it a strategic and brand necessity to be in on the game given the market’s dynamism and status in the retail financial services space. Yet the AUA, whatever its growth, cannot sustain the scale and development needs of so many providers. In short, consolidation is on the cards. Look at the leading platform markets, the US and Australia in particular, and the case is clear.
But, if consolidation is coming, who will be doing it and who will be on which side of the fence, buyer or target/seller? The entry of a big bank or custodian into this space could be the catalyst for change. We cannot believe they are all sitting back and not watching the space, particularly as the banking licence is one element that platforms have not yet brought to the table.
-- Stephen Wall is a director at wealth management strategy think-tank Scorpio Partnership
