Ask clients what they are looking for from an investment platform provider and the vast majority would, quite reasonably, consider stability and reliability as basic hygiene factors.
Decades of industry stability prior to the RDR means the idea that a major provider might stop serving them is unthinkable.
But waves of regulation and legislation, combined with an historic reluctance to change, have left industry stalwarts questioning whether they now have the strength of stomach, or depth of pockets, to hang in for the long term.
This should not be a surprise. In the next three years, the industry will have moved decisively from product to platform, from fund picking to central investment propositions, from opaque bundled charging to transparent pricing, from hard commissions to adviser charging, from fund rebates to clean fees, and increasingly from annuities to drawdown.
The only way to compete is by consistently delivering a service that people want at the price it is advertised at. For some, the scale of investment to deliver this is substantial, particularly if they have not yet adopted modern IT infrastructure.
And there is more to come. With the second Markets in Financial Instruments Directive and the consultation on pensions tax relief likely to demand even more investment, the attractiveness of the platform market may wane further in the eyes of providers still recovering from the RDR hangover.
But while some may look back fondly to the ‘good old days’ of bundled pricing and packaged products, these changes have undoubtedly improved the quality of our industry greatly and the client outcomes delivered.
Likewise, the exit of platforms that are simply uncompetitive will be of no great loss.
What we are seeing is a process of Darwinian natural selection. Only the fittest will survive, given the finite size of the market opportunity.
It is also worth reflecting on Darwin’s key criteria for success. Not size, strength nor intelligence, but the ability to adapt. It is here, perhaps, that we can see the greatest differentiation in the marketplace.
The pace by which providers have embraced adviser charging, unbundling, transparency and changing adviser models is a key indicator of their ability to adapt and evolve.
Whether driven by resource constraints or a wish to hang on to additional rebate-based revenues as long as possible, those platforms that have delayed progressing their models or have gone for a minimum-compliance approach may well find the cost and/or business strain of trying to catch up just too high.
If we consider other, more mature platform markets such as those in the US and Australia, there is a distinct shape to consolidation.
The first stage is the consolidation of new business flows, the second is platform stagnation, the third is mergers and the final stage is platform exit.
If we apply this model to the UK market we can see that consolidation within the adviser platform industry started long before the recent corporate activity.
