The devil in the detail

Death of the platform

Over the past few months, I’ve read a number of opinion pieces which seem to suggest that the days of the independent adviser platform are numbered. They fall into two distinct groups.

The first group focused on an apparently emerging trend where adviser firms take advantage of new technology to operate their own platform – the so-called adviser as platform model. As an aside, that terminology sounds horribly clunky to me – how about adviser-run platform instead?

The second group of articles highlights one specific category of new technology, blockchain, and predicts that it will eliminate the need for investment platforms once all funds have been tokenised and tracked via a distributed ledger.

Ignore for a moment the regulatory and capital costs of running a platform or the fact that most platforms deal with a wider range of assets than just funds. The broader issue that both these arguments are missing is the complexity of administering the tax wrappers via which the majority of assets are held. Whether it’s the monthly reclaim and reconciliation of pension tax relief from the HMRC, the calculation of Chargeable Gains on a bond or the repairing of an ISA where limits have been breached, there is lots of hidden devil in the detail of managing tax wrappers on behalf of investors.

In fact, the Altus capability model for Investment Platforms identifies almost 250 distinct capabilities required to service accounts on behalf of clients. A blockchain of funds, even if it can be made to work in a way the regulator accepts, will do absolutely nothing to help with those capabilities.

Adviser-run platform

The adviser-run platform argument has more legs in this area as several of the capabilities could be automated by new technology – pension tax reclaims and reporting for example. However, there are many more capabilities which, inevitably, will require personal interaction with the client along with a detailed knowledge of tax rules – as I’m sure anyone who has been involved with administering pension benefit crystallisation events will attest!

Based on the Altus capability model, and depending on the detail of any deal, we estimate that between 60 and 80 additional capabilities will fall on an adviser firm, not to mention the extra oversight, compliance and reporting duties. And, whilst you may be able to outsource activity, you can’t outsource regulatory responsibility. For a firm with 1,000 clients, the Altus platform cost benchmark estimates that taking on platform permissions will add around £300k to their cost of operations. For some tech-savvy firms who really want to differentiate via technology, that may be a cost worth paying but, for many, it won’t.

So, there you have it. The funds blockchain wars are a sideshow that may require platforms to adapt but will certainly not destroy them. Meanwhile, the adviser-run platform model is a more serious contender and will continue to attract some firms, particularly for clients with simpler needs. However, it is not the existential threat that some people suggest.  In summary, independent adviser platforms are here to stay.