Business schools’ professors just love comparing one industry to another, to learn lessons, often with very little justification. The recent MBA student will bore colleagues rigid by telling them how similar retail investment is to the drugs industry. Nonetheless, one that really does measure up over time is the comparison of retail financial services and the retail food/grocery sector.
In distribution, there are nationals, networks and locals in each industry. There are big brand manufacturers and boutiques. The most valuable lessons come from vertical integration. The biggest message learned by innovators such as David Ferguson, chief executive at Nucleus, is that distribution can and should own the customer. That is why Walmart, Carrefour and Tesco are the three global giants. At one time, biscuit makers Huntley & Palmers had a far bigger brand than any distributor.
In UK financial services, regulation largely ended the vertically integrated business. The only survivors are the high street banks (just) and SJP, a lighthouse of success in a dark sea of failure. This is set to change, despite and because of regulation. One of the drivers of change is the adoption of platforms.
In recent years, we have seen the major networks develop platform strategies, often with dire results. One of the longest sagas was the alliance of Norwich Union and Millfield to produce a platform. Over £100m later, this became Norwich Union’s platform, but not for long.
Bankhall managed to get Portavista off the ground, but with limited success. Capita ultimately pulled the plug on the software and the platform was closed down.
Honister toyed with the idea for some time and was in advanced negotiations with software providers before, wisely, deciding against it.
There were two major obstacles:
* Network members are hugely independent and tend not to do as they are told without good reason.
* The platform would have to be better than best, almost impossible with an extra scrape for the network and something to make it worthwhile for the member
Then, of course, along came the Difs, or as Dan Waters, then of the FSA, called them, broker bonds. Difs have not gone away, but RDR will prohibit a margin trickling down to the adviser.
In a post-RDR world, most large adviser businesses will either specify the platform that their advisers recommend or gently persuade them.
There are numerous reasons to specify the platform:
* It is far cheaper to run one, or possibly two, platforms across the business with common process, less training.
* Better deals can be negotiated.
* An improved infrastructure can be built within the platform itself fully integrated with other systems in the business.
* It will aid consistency of advice.
* Investment models can be run on platform from risk to asset allocation and fund selections and all joined up, for example risk tool matches funds.
* Platform processes will have built-in compliance.
In short, why would you not?
One reason is that you might persuade the regulator that you are not fully independent. That may not matter as the benefits of a restricted proposition can easily outweigh those of independence.
