This is a comment from an IFA on the recent history of retail investment platforms in the UK.
I find AJ Bell about the best, but they too have their moments.
Aviva – Rubbish
Aegon – Rubbish
ATS – Rubbish
Fidelity – Rubbish
Cofunds – Rubbish
James Hay – Rubbish
The counter argument is that if they are all pretty much as useless as each other then you might as well have the cheapest rubbish
The point of platforms is to please IFAs who in turn can show off to clients. But if you read this report from Citywire, you’d wonder why insurers bother with platforms and why anyone is bothering with “re-platforming”.
The comment of the chap above is only one of 40 on a similar theme. IFAs get the platform for free, tools for free and the kudos of a working portal for free. The client pays a platform fee and the IFA benefits by picking up on average 0.83% pa in management charges (up from the 0.47% taken before the implementation of RDR). With the FTSE at an all time high, small wonder that the average IFA is now earning well over £90,000 and in a position to moan at the time cost of having to wait on the phone to sort our platform queries.
I know of no other industry where the intermediary is quite so indulged by both clients and suppliers; nor any industry where those who take so little risk are able to moan to anything like the same degree.
What is the point of these platforms?
These platforms are outrageously expensive.
The IFAs pass on the cost of the modellers and the functionality to clients when they could (perhaps should) be absorbing into their advisory fees.
The platform – incentivising short-termism.
The platform itself is a luxury item that is – for the most part – totally unnecessary. It gives the adviser the opportunity to move your money from fund to fund with untold transition costs and with dubious advantage. Tactical asset allocation (e.g. – second guessing the market) is fun when you are playing with other people’s money, but how many of us would be buying and selling physical assets as we do funds.
If IFAs properly understood single swinging pricing, they would realise that every fund switch has the potentials to lose clients hard-earned value. But since the cost of transitioning is rarely if ever disclosed even to the IFA (let alone the hapless client) the platform becomes not just the means but the justification for churning.
After all, if your client’s being charged 30bps a year for the capacity to trade, trading perversely seems the value for your money. This is no way to carry on. It forces managers to carry too much liquidity and requires them to justify themselves on all the wrong metrics.
Platforms – the insurer’s ruin
One after another, the insurers are ruining their businesses investing in “the rubbish” that they’re served up by FNZ, Bravura, GBST and the rest. I was amazed to read Zurich’s Alistair Wilson tell New Model Adviser
“Our platform is already powered by the latest technology and therefore we have not needed to carry out any large-scale upgrades. However, to ensure our platform remains at the technological forefront for advisers and their clients, we continue to release regular updates to enhance the design”
,Zurich use the “latest technology” of FNZ, technology Adrian Durham and David Harris approached me with in 2003. 15 years later this technology is still being touted as “latest”. In the meantime, large sections of our economy has moved on. The databases of today are provided by Salesforce, Microsoft and Amazon. We are in an era of Open Banking where APIs move data from point to point at the press of a button. The distributive ledger is taking over and with it artificial intelligence. I see precious little of any of this in the offerings of any UK insurer.
Instead I see ruinous “re-platforming” , destroying value for shareholders and policyholders alike. Old Mutual, Aegon, Aviva, Phoenix, Standard Life , Fidelity – you name the insurer, you’ll find a train crash in terms of customer and shareholder satisfaction with the finger pointed at “re-platforming”.
The reason that re-platforming is ruinously expensive is that the technology is old and hopeless. The new stuff is almost as old and still pretty hopeless. Rather than take a proper decision to move to next generation technology, the insurers do what they see as least risky and follow the herd.
Nobody got fired for hiring FNZ
Four years after the announcement that we would never have to purchase an annuity again, the insurers are finally getting round to building systems that allow people to have their money back in the way that suits them, “To and through”, should benefit the insurers – who can benefit from platform fees for as long again as the saving period. And of course it will benefit IFAs who can factor in advisory fees for just as long.
But instead of taking the opportunity to build out to the Fintech technology that is changing the way we pay and get paid, the insurers are simply employing their platform managers to pile on the agony.
The lack of a coherent and forward looking technology strategy among the insurers and most of the SIPP providers is staggering.
What is the point of these fund platforms?
You cannot avoid the conclusion that platforms are there to fill the hole left by commission. The public seem to have an appetite to pay more than 2%pa for their money, and – as Vanguard are now showing – it’s quite possible to provide everything the investor needs for less than 0.30%.
But thanks to platforms , we are typically paying six times as much for very little more. Indeed, if we take into account the extra cost of transitioning within funds and between funds , we may find the true cost of platforms creeping towards 3% pa.
Fund platforms are great for advisers and platform providers , they are proving the ruin of insurers and consumers. Avoid.