Understanding the financial strength of platforms is crucial for advisers but is a “minefield” due to the opaqueness of the financial structures and holding companies behind the platforms themselves.
That is the view of consultancy the Lang Cat, which has reviewed the financial strength of the advised platform market in its quarterly Platform Market Scorecard.
The Lang Cat says that because of the introduction of new product governance rules and the collapse of Beaufort Securities a platform’s financial strength must be a key consideration for advisers when selecting which platform to use.
The scorecard looks at overall platform profitability, yield on assets under administration and the direct impact on profitability of higher inflows, proprietary technology and overall size.
The Lang Cat has not included Aegon, FundsNetwork, Old Mutual Wealth and Zurich in its initial analysis. It says these were excluded to avoid “simplistic readings of complex situations”, for example, where platform businesses or product lines are buried within the structure of an organisation.
Total sales across all channels in the second quarter of 2018 were £11.8bn, down 15 per cent compared to the same period of 2017, and overall AUA rose 10 per cent to £528.8bn.
In its analysis, the Lang Cat highlights the impact of large-scale replatforming and says there are no real links between size and flows on profit.
It says pure platform charges below 30 basis points showed “a lot of deal-making”.
The scorecard also includes political, economic, social and technological issues affecting the market.
According to the report, advisers want platforms that are good at the basics with fewer advice and planning tools.
Lang Cat principal Mark Polson says: “Financial performance is one of those issues that really challenges the platform sector. Advisers need a route in to understanding the position of the providers they use, and that’s a much harder needle to thread.”
Polson adds: “It remains very challenging for advisers to unpick figures and work out how to use financial performance and strength as an indicator of suitability. It is something we have very much got our eyes on for the future.”