A “war on inefficiency” has begun in the platform market where incumbents are collectively trying to streamline their processes to be able to serve more clients.
This is among the findings from SuitabilityHub who released their second Platform Market Wrap last month.
“Platforms are trying to standardise processes, cut down multiple steps down to one step where [it’s] possible [to] create templates that help them provide consistent service to clients in bulk,” the firm’s founder and managing director Recep Peker tells Professional Planner.
Modern tech platforms play an important role in helping businesses implement advice and provide ongoing service, and Peker notes platforms have been using AI to improve efficiency.
“One thing right now is platforms have an arms race for having the most features or being the most cost competitive,” Peker says.
Peker says value proposition is a potential competitive element for platforms who don’t want to win on having the lowest fees.
“If you don’t want to compete exclusively on features and fees, you have to broaden your proposition from how other platforms are competing.”
Strength in (fewer) numbers
Reducing the number of platforms in use is a focus for advisers as the fewer platforms, the less cumbersome it is for a business to provide advice.
Data from Investment Trends found the average number of platforms used by advisers is three, but Peker says firms want to get down to one or two.
“One aspect is, advisers want to use fewer platforms, so the ongoing servicing piece becomes easier,” Peker says.
“Generally speaking, the view is let’s use one or two platforms, because you get the scale efficiencies of people doing the same thing, learning the processes of one platform, getting really good at operating well as a business in line with how that platform is designed.”
Dealing with a small number of platforms has been encouraged by advice business consultancies such as Finura Group, which predicted advice firms would look to rely on a single platform.
The implementation of advice via a platform can be very costly for advice practices, as heard at the Professional Planner Advice Policy Summit in February. The adviser told the room it cost their practice “a fortune” to interact with the platforms.
Similarly, Peker says the process of switching platforms is “very costly” and “time consuming” because there are so many steps, including running book analysis, checking clients on the legacy platform and assessing if the new platform will be an improvement.
“What you’ll find is that most advisers, when they start using a new platform, they’ll mainly use it for new business only,” Peker says.
“They’ll try it out for a couple of years to really see [if the] business platform is going to give me the scale and efficiency benefits [they] expect. Then they’ll slowly start transitioning the back book of their clients from the other systems.”
This is because if previous clients are sitting on a legacy platform, it may be more trouble and expense than it’s worth.
Peker mentioned some businesses can do an in specie transfer – when the ownership of an asset is transferred from one entity to another in its current form without having to convert the asset to cash – between platforms.
“If it’s a master trust, the legacy one, it’s much harder to move,” Peker says. “But if it’s not a master trust, then it depends on whether the platform supports in specie or not.”
Value proposition
Peker also mentioned platforms helping advisers broaden their capabilities as another important market development.
“Some financial advisers…want to serve high-net-worth [HNW] customers,” Peker says. “They want to provide advice to people with more sophisticated needs.”
But branching into the HNW space requires a strong value proposition that advice practices can get from tools provided by some platforms.
“The businesses who are already doing that, they’re well established, and they have strong processes around serving that market,” Peker says.
“Then there are advice businesses where, through their current processes, they’ve gotten really good at providing advice, and now they see the next step, serving that HNW segment.”
