Guide to the evolution of platforms

Evolution of the platforms

They say rules are made to be broken, but that is not the case for the platform market. 

In fact, rules and regulation have actually been the catalyst for improvement, according to Quilter’s Jenny Davidson. 

The commercial proposition director says the Retail Distribution Review in 2012 and the recent consumer duty have been key drivers of this change, adding: “Regulation has been a catalyst for the evolution of the platform market from their original role as a ‘fund supermarket’ to now becoming a central part of how advice firms deliver their client propositions and create good outcomes for their client.” 

“The RDR was a significant driver of this change and while there has been a high quantum of regulatory change since then it has all been about improving customer trust in the financial services industry, customer outcomes and consequently has driven innovation within the platform market to support the evolving needs of adviser firms and their clients.

“Clearly this has developed further, with the likes of the consumer duty and assessment of values driving the need for platforms to shine a light upon themselves and focus on how they benefit the customer.”

Davidson argues that regulation has brought platforms and advisers closer together to ensure the advice a client receives is as accurate and as timely as possible.

She adds:  “It is hard for advisers to keep track of every piece of regulation that impacts them at the same time as servicing their book of business.

"As such, platforms have had to take regulatory changes and adapt their businesses in order to help advisers thrive and deliver that advice. Therefore, platforms invest heavily in technical expertise and planning tools to give advisers everything they need at their fingertips to deliver quality recommendations.”

Pension freedoms

Initiatives such as the pensions freedoms, introduced in 2015, have driven consumers to actively seek solutions where they can access and manage their portfolios themselves, fuelling the growth in investment solutions. 

Antonia Medlicott, founder of Investing Insiders, says the platform market has evolved significantly over the past few years, with rapid growth in assets under administration and the services and products being offered.

She adds: "Driven by both advancements in technology and regulatory pressures, one of the most significant changes has been in the transparency of costs and consumer protection.

"While regulatory bodies like the Financial Conduct Authority would undoubtedly like to see more of the UK population turning cash savings into investments, the landscape needs to give them the confidence to do so while understanding the risks they take, especially surrounding certain assets and products. 

“This level of consumer protection has prompted greater innovation and enhancement of services while refining the consumer experience. Platforms have made investing accessible to all walks of life in a safe and easy-to-use environment.”

Innovation

Medlicott says constant innovation has led to an increase in the types of platforms being offered. 

She adds: “Traditional investment platforms still dominate the market with a wide range of investment options and comprehensive research. These options can help instil confidence in investors looking for a household brand with longevity in the marketplace.

"However, disruptors are starting to gain traction, with robo-advisers such as InvestEngine offering a simplified cost-effective way to invest, with a decent amount of guidance for less confident investors.

"Trading platforms such as IG and Saxo are now delivering lightning-fast execution speeds as well as robust tools for active traders while social trading and copy trading platforms like eToro allow newbies to lean into the experience of seasoned investors and traders. Even budgeting platforms are obtaining their portion of market share as consumers seek financial freedom.”

Disruption

According to Medlicott, disrupting platforms have forced pressure on traditional platforms to lower fees to compete with offers like zero commissions on trades.

"However, consumers are still likely to experience a higher level of customer service at traditional platforms," she says. "Low cost can often be at the expense of the white glove service you will get at platforms like Fidelity.

“The gap between traditional platforms and disruptors is, however, narrowing as traditional platforms improve their user experience and pricing and disruptors expand their offering of services and products.”

Danielle Rothery, regional advisory services manager at Progeny, says: “Regulatory changes have a huge impact on the platform market, creating both challenge and innovation.  

"The challenge relates to the cost of platform developments, particularly for those using third-party technology. More money spent on meeting regulatory changes can also mean some of the more innovative plans on platform provider roadmaps are pushed further down the road.”

But Mark Rendle, product director at AJ Bell, says maintaining service, functionality and price are key factors that will help ensure the success of the platform market in the future. 

He says: “The platform market is an important part of the UK advice landscape and platforms tend to be a key part of the delivery of many regulatory requirements, from managing the safe keeping of client money and assets to facilitating reporting up and down the distribution chain. 

"However, through different regulatory regimes and market conditions, it has remained the case that platforms need to focus on three central tenets: service, functionality and price – the right blend of these three factors drive long-term success.  

“Unfortunately, there is the temptation for the industry to bend to short-term trends and for providers, large and small, to make strategic distribution plays – whether this is appetite from larger businesses for providing platforms waxing and waning, or marketing messages from new entrants blurring the reality of demand and practical adoption – often sacrificing at least one of those three central tenets."

Rendle concludes that maintaining service and functionality requires both investment and commitment; deep pockets are irrelevant if the money within them is not committed to the right long-term goals.

This, he says, creates a due diligence challenge for advisers beyond financial strength; the best measure of a company’s commitment to the platform market is not its balance sheet but the proportion of its revenue that is generated from its platform services.

The role of platforms in helping to close advice gap

Forget 'mind the gap', closing the gap is the most important factor to consider within the platform market.

This is because platforms have become an indispensable tool in bridging the advice gap, according to Scott Gallacher, chartered financial planner and director at Rowley Turton, who argues that direct-to-client platforms and adviser-focused platforms have both played a crucial role to address the problem. 

He says: “In the UK financial services sector, platforms have become indispensable for both advisers and clients, especially in addressing the advice gap. This gap refers to those who need financial advice but struggle to access or afford it. Platforms contribute to bridging this gap in two key ways.

"Firstly, through direct-to-client platforms. Many platforms aimed at clients now offer hybrid models that combine robo-advice with human oversight. This setup is ideal for clients with simpler needs, streamlining the advice process and making it more affordable for a wider audience.

“Secondly, adviser-focused platforms indirectly help close the advice gap by simplifying and improving advisers' operational efficiency. The more streamlined their processes, the more clients they can serve effectively.”

Financial Conduct Authority data shows just 8 per cent of all UK adults – that is 4.4m people – currently receive any sort of professional financial advice. 

Meanwhile, St James’s Place’s research has found 24.6m people have never received professional financial advice, or indeed broader financial guidance, of any kind.  

Platform provision

Gallacher adds that platforms are beneficial because they provide accessibility to investments, efficiency and scalability, cost reduction and offer built-in compliance support. 

He says: “Platforms provide a comprehensive range of investment options, from model portfolios to a selection of funds, all in one place. This simplifies access and allows for easy rebalancing, making quality advice more widely accessible.

“By automating essential processes – such as portfolio rebalancing, trading, and reporting – platforms enable advisers to manage more clients effectively. This is especially beneficial for reaching clients who may not fit the traditional high-net-worth profile.”

He adds that platforms also offer access to investments at institutional rates, reducing overall costs.

“This affordability, combined with advisers’ improved efficiency, can help lower advice costs, especially for those who bill hourly, making advice accessible to a broader range of clients.”

Platforms often include compliance tools that aid advisers in meeting regulatory requirements efficiently. Gallacher adds: “For smaller firms, this can greatly reduce the time and expense associated with compliance, which is key to cost-effective advice.

“In practice, platforms allow advisers to standardise tasks like onboarding, reviews, and portfolio management, fostering a scalable and cost-effective model suited to a broader client base.”

Advised investment platforms also make financial advice and investment management more accessible and efficient for a broader audience.

Collaboration is key

Mark Sanderson, managing director of Morningstar Wealth Platform, says: “The advice gap is more likely to affect those with moderate wealth but still don’t feel they can afford comprehensive financial advice, as opposed to those who have little or no savings at all. Advisers want to be able to support more people, but the increased regulation and legislation have the effect of driving up the cost to serve.” 

He adds that platforms allow advisers to leverage technology to offer advice more efficiently and cost-effectively. 

“By automating routine processes and improving back-office functions, advisers can reduce the time and costs associated with client onboarding, portfolio management, and reporting.

“This efficiency allows advisers to spend more time with customers and serve more clients at a lower price point.

"While it might seem obvious, collaboration is essential to delivering the greatest value to advisers. By engaging regularly with our clients, gathering their feedback, and continuously refining our technology, we ensure we’re meeting their needs and maximising the value we provide.”

Platforms are a convenience for clients who want a consolidated report but also wish to diversify in terms of products and fund managers.

Alan Lakey, director at Highclere Financial Services, says: “I have found that clients like to see all of their investments lined up, rather than a bits and pieces approach. It also saves them shuffling numerous biannual updates from the various companies.

“Clients are less likely to encase investments when they have 24/7 access and can see performance easily.”

AJ Bell operates multiple intermediated platforms; AJ Bell Investcentre services financial advisers and their clients and AJ Bell Custody Solutions provides a white-labelled institutional service to wealth managers.

However, Mark Rendle, product director at AJ Bell, says the service model supporting both platforms – the right combination of people, automation and technology – is of equal importance.

“These core strengths also provide the foundations for innovation – listening to demand from advisers, we are developing an app-based proposition, tying advice and implementation and helping advisers to support more clients and potentially engage with new client segments.

“The implementation of platform services is clearly heavily influenced, and in some cases impeded, by regulation – especially the poorly managed overlap between regulatory bodies.

"The FCA’s direct implementation of the new offshore funds regime and the temporary permissions that came before it was well managed, however the overlap with HMRC rules and the potential impact on Isa eligibility seemed to be overlooked – an unfortunate symptom of the challenge of marching to multiple regulatory drums.

“In spite of the occasional regulatory wrinkle, larger initiatives have typically supported those with the best interests of customers at heart. The formulation of the consumer duty and focus on products, services and understanding was a welcome acknowledgement from the regulator of how well-run businesses operate.”