Analysis: On or off? Firms torn over platforms

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Uncertainty over regulation has led to debate about when financial advisers should use investment platforms to administer clients’ assets. Some fear that the retail distribution review (RDR) could force some advisory businesses to move off platform.

The theory behind the off-platform argument is that, because an adviser would be bypassing the 0.25% standard fee charged by most platforms, investors would be spared an unnecessary cost. But there are concerns over the consequences of such a move.

Advisers argue that if they are forced to run client assets off platform they will have to build complicated infrastructure to support this type of business - the cost of which would have to be passed on to clients.

Dennis Hall, the managing director of Yellowtail Financial Planning, says the idea of going off platform is not one he supports. “I think platforms have evolved to the point where it is simply more efficient to be on one. There might be some instances, such as for legacy reasons, why you would run [assets] off platform,” he says.

“There would be an increased administration cost of running assets off platform, and that would be passed on to the client. The idea is counter-intuitive and goes against everything I’ve known and done.”

As is to be expected, platform provi­ders support the idea of advisers being allowed to remain on their platforms because they see it as the most cost-effective solution. (article continues below)

Verona Smith, the head of dealing at Cofunds, says: “We believe that RDR will drive more advisers on to platforms. They make operations much more efficient, even for legacy business, so we offer support to both sides of it.”

Smith says that if the regulation requires IFAs to cut the cost of staying on a platform they may have few choices. However, she doubts there is a sustainable alternative.

“Being on a platform allows advisers to spend more time with their clients,” says Smith. “If they were to do it themselves, they would potentially have to deal with 20 different fund managers, fill out all the required applications and much more. This requires a lot of resources and overheads, whereas on a platform they just have to trade - and advisers want to trade.”

“We believe that RDR will drive more advisers on to platforms”

Verona Smith

Even if advisers do not want to go off platform and providers think there is no better alternative, there are groups that can create outsourced infrastructure for them.

David Moffat, a group executive at IFDS, a data transfer agency, says there are plenty of tools for off-platform advisers. “Something like 50% of assets cannot go on a platform anyway,” he says. “We already provide services for advisers such as Distributor­­Online, which pulls information for them to access for free.

“However, we think that more and more assets will be going on to platforms, and RDR is going to accelerate the trend.”

To an extent, Moffat sits on both sides of the debate, as not only is he employed by IFDS - which provides infrastructure to financial services firms - but he also chairs the Tax Incentivised Savings Association’s Platform Council. Despite his view that more advisers will move on to platforms after RDR, he adds that “there are certainly options and solutions for [off-platform] advisers.”

Other independent infrastructure providers take a similar view. A spokesman for Euroclear, which processes fund trades, says the firm “goes a long way” to automating the way British clients are able to hold investment funds with fund managers, “irrespective of what regulations are introduced”.

Some commentators have raised questions over whether fund management groups could accommodate an influx of advisers who have their own infrastructure systems if an off-platform environment was imposed. The Investment Management Association (IMA), however, says the evidence suggests fund groups have the necessary capability.

“Investment managers already take business from IFAs,” says Andy Maysey, a senior adviser on retail distribution at the IMA. “Over time, platforms have filled the space, but if a lot more advisers were going off platform, [fund groups] might have to build infra­structure.”

What is clear is that the fuel of this debate is the ongoing uncertainty over the final shape the RDR will take. While doubts remain, advisers will stay on their guard.

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