“You have to ask here - what’s the endgame? The platform marketplace is beginning to become dominated by FNZ. If it heads towards a monopoly, the company will have pricing power and it’s likely it will use it,” said one member of the industry.
“These deals might be loss-making in the short-term, but in the long-term this will have to change.”
A PE-fuelled FNZ ecosystem
In February, FNZ bagged a $1.4bn (£1.2bn) investment from asset manager CPP Investments and private equity firm Motive Partners, valuing the company at over $20bn (£17bn).
It has tried to use some of its investment over the years to buy up the competition.
FNZ bought GBST in a deal worth £220mn in the summer of 2019, but the competition watchdog blocked the merger a year later. It concluded the move would see customers using investment platforms face “higher costs and lower quality services”.
On its own, FNZ already administers over $1.5trn (£1.3mn) in assets, supports more than 8,000 wealth management firms and around 20mn of their investing clients.
One thing the company does like to do is buy stakes in some of its clients.
It has a 9.1 per cent stake in Embark, now owned by Lloyds. It has also co-invested in Embark's FNZ migration project, helping the company to keep the implementation costs on its books down.
FTAdviser understands a big part of initial discussions with James Hay were about FNZ acquiring a stake in the business alongside with Epiris - the private equity investor which bought James Hay but later sold some of its stake to HPS Investment Partners.
“Having a stake enables FNZ to offer that cheaper bps deal,” said another source. “They know they will get a private equity exit amount from the profit generated from a lower bps margin. They can keep variable costs low in exchange for equity.”
Firms ‘become FNZ shopfronts’
A big draw to FNZ for providers and advice firms alike is the fact they can outsource more to the company than they can with its core competitors, GBST and Bravura.
This allows advice firms in particular to focus on running their advice operations, making owning a platform less disruptive to their business models.
But it also poses the question - if FNZ is powering everything, what’s the point in the platform?
A source said: “What FNZ is doing is essentially providing the technology, administration and regulatory reporting, shifting customer service which traditional platforms provided back to the adviser. And it’s cutting out the traditional platforms in the process.”
Another added: “The issue is - the adviser or platform becomes a shop window for FNZ. Platforms simply become distribution, not doing much else.”
It would make little sense for FNZ to sign lots of deals directly with advice firms if that means causing its existing clients huge outflows.
