In an increasingly commoditised sector how do Financial Planners make the right choices and how much ‘weight’ should they give to other criteria?
The consensus among Financial Planners and Paraplanners we spoke to was that elements other than purely price needed to be considered thoroughly and constantly, writes James Nadal.
Tamsin Caine, CFPTM Chartered MCSI at Smart Financial in Altrincham, said: “The price of platforms is important but isn’t the sole reason for selecting a platform. Sustainability is vital, knowing the platform is viable for the long term. To walk into the office one day to find the platform that you have been recommending to your clients no longer exists because it wasn’t a profitable business is not a position I would ever like to be in.
“There are other important issues as well, such as customer service, the ability and willingness that the platform has to sort out problems quickly, the usability of its website, the availability of the investments that we want to use as a business.”
Nathan Fryer, MD of Surrey-based outsourced Paraplanning firm Plan-Works, believes most platforms offer largely the same, with the only tangible differentiator being service. This, he stressed, will always trump minor differences in software or tools.
He said: “My view is that price is not, and should not be the primary factor in selecting a platform. It is service, and the sooner platforms recognise this, the better both in terms of the adviser and client experience. Platforms are businesses and therefore understandably focused on the bottom line. But they need a better understanding of what factors influence that bottom line, and it’s not just price. You only have to look at Royal London’s business model to understand what I mean by the difference that service makes. Every single adviser I know has written business with Royal London. Why? Because they are easy to do business with.”
John Redmond APP, Paraplanner at BPH Wealth, said: “The price of platforms is very important, because it is our clients who pay for the privilege of platforms. However, there is a balance to be struck here, because we want our platforms to be functional and easy to use - both for the client’s benefit and our own - and it stands to reason that the very low cost platforms are unlikely to be the most functional.
“How easy a platform is to use - which is partly determined by the level of service they give - is a major factor in whether I will be happy using them. I think the competition on price is one thing but platforms should remember that the service levels are hugely important and should not be compromised.”
Andrew Elson CFPTM, principal partner of Beaufort Financial Planning (Yorkshire), an Accredited Financial Planning Firm, said price should be one of the first considerations but planners must ask if the cheapest platform is able to do what their client needs?
“We have some clients with relatively simple investment needs, who just want their money managing and nothing more. So for these a platform that gives us the full access to funds at the cheapest price will be right for them.”
For others with more sophisticated needs, a more expensive platform able to offer a more robust experience, quicker trading, better administration, fewer errors, and better client log in experience, might be best, he said.
Sheriar Bradbury, MD of Bradbury Hamilton, said that RDR-enforced transparency has put cost under the spotlight. He said: “As firms jostle with each other to secure the most for their money, the platforms themselves battle for market share. Being able to compare costs transparently is key, and from what I see, the price war has not downgraded the service offered by the platform providers. They strive to tick all the boxes which is clearly good news for advisers and their clients.”
The views of Tamsin Caine CFPTM Chartered MCSI Smart Financial, Altrincham
How do you get the best deal from platforms?
TC: We meet with our business development managers around once per quarter. We ensure that they understand what we expect from them, including issue resolution. These meetings also give us the opportunity to find out about developments being planned and those that are being rolled out. The platforms that we work with also work with other firms with a similar ethos as ours and so the events that they hold are aimed at like-minded advisers, which we find beneficial. Our current preferred providers are also aware that we review our choice of platforms regularly. We want them to continue to maintain, or exceed, our expectations in order to keep their places as preferred providers. We try to feed back good experiences as well as disappointments to ensure that we are not always complaining.
Is competition intensifying?
TC: I don’t think that competition is heating up in terms of new platform launches. I suspect that now will be a time for consolidation. Those sustainable, profitable businesses will survive and others will either merge or close. The remaining platforms may then compete on price but there has to be a point at which that stops, otherwise the business or service will suffer. We have already seen some of the fund supermarkets losing field based business development managers in order to cut costs. The reduction in the size of a business’ team may well lead to a reduced level of service.
Future competition is likely to focus on additional services that platforms can provide. We have already been asked by our main platform providers for ideas of additional service that we would like to see them provide.
The views of Nathan Fryer MD at Outsourced Paraplanning firm Plan-Works, Surrey.
How do you get the best deal from platforms?
NF: You need to have a good mutual relationship with either your sales representative or office based support. These people should not only be on hand to promote the platform’s products and services, but also to support and advise you through any problems and queries. I have experienced some consultants who are only interested in extracting as much AUM out of your business as possible, but as soon as you have a problem they are simply not interested and I think it is these experiences that drive advisers to their competitors.
Is competition increasing?
NF: While the pricing war may have come to somewhat of a standstill I think we are beginning to find out who’s been ‘swimming naked’. We have seen the likes of Cofunds, AXA Elevate (recently sold) and more recently Old Mutual Wealth start to put the feelers out, and what I find interesting is that the likes of Standard Life and AJ Bell are exploring these opportunities. At the one end you would expect to see the benefits of the efficiencies of scale and at the other, you would expect to see small net profit margins, but this simply isn’t the case. The key factors impacting this are the need to keep up with new technology, and the pressure and expectations on service levels needed to operate a successful platform.
The views of John Redmond APP ACSI Paraplanner at BPH Wealth in Harpenden, Herts
How can planners get the most from platforms and a better deal?
JR: Spend the time reviewing the platforms that are out there and speaking to the representatives of platforms. Forge good relationships with the reps of the platforms you use and you hopefully you will find those people going out of their way to help you with any troubleshooting issues as well as development. Take the time to give constructive feedback to your platforms of choice too, as you can probably help to shape platform developments and so on.
Is competition heating up?
JR: I think competition is likely to continue, although it might be somewhat affected if we see consolidation in the platform market. The price war is probably never going to fully disappear, but once prices reach a certain point we will see more of a shift to competition in respect of functionality and usability. Competition will continue to be about more than just cost. Technology, for example, will have a big role to play in competition because I think more and more adviser firms are keen to improve the efficiency of their businesses and the technology associated with platforms (particularly their integration with back office software) should be a big agenda point.
The views of Andrew Elson CFPTM Chartered MCSI Principal, Beaufort Financial Planning (Yorkshire)
What should planners consider when choosing the right platform?
AE: Price should be one of the first because you if you can get the same solution / client needs from a cheaper provider, then that should be your recommendation. That said, will the cheapest platform be able to do what your client needs? Can they easily do CGT calculations? Do they allow access to the full market range of funds, or do they not allow some funds to be added on to their platform? When changing portfolios some prefund and are very quick to compete, others can take two weeks and have minimum trades, which can cause issues.
Balancing price and service
AE: Unfortunately the better platforms are often a bit more expensive, so there has to be real client benefit to using a more expensive platform, rather than it being easier for the adviser team. Usually the cheaper offerings are cheap for a reason - things don’t quite work as well or features are missing. Understanding how your platform operates is key for advisers, especially around cash accounts and paying fees as well as completing transactions. In our view a couple of the major players platforms are almost unworkable, due to the way they have cash accounts set up, which is really confusing for clients, with lots of regular fund sales to pay fees.
The views of Sheriar Bradbury Managing Director of Bradbury Hamilton, London
How does your firm assess the suitability of a platform?
SB: As a business, we have invested considerable time and money researching all the available platforms and thoroughly training our staff on how to use them effectively. We go through a multi- step process when assessing the suitability of a platform and consider the following:
1. Financial strength: needs to be rated AKG B+ or above
2. Scope: must include Pensions, Drawdown, General Investment Account, ISA, Onshore /Offshore Investment Bond and Cash
3. Functionality: must incorporate Capital Gains Tax calculator, Model Portfolio Service, DFM client portals, Bed and ISA, rebalancing tools, user support, and pre-funding.
4. Cost: needs to embrace annual plus additional costs, switching charge, family charge linking and exit charge.
The initial outlay has increased our running costs but the investment enables us to align our advice directly to the client’s needs. Each platform offers something different. For clients with complex requirements and larger funds, providers such as Transact may be appropriate. For clients with simple NIsa/Personal Pension and OEICs, Aviva will be more suitable.
The views of Mark Polson Founder of the Lang Cat Consultancy, Edinburgh
Where are platforms going and what are your tips?
MP: I think we might be starting to see a bit of a change in the market. Platforms, to our mind at least, haven’t fulfilled their potential of making transformative change possible for advisers and clients. They’ve gone some of the way, but why, if Financial Planning is what matters, don’t more platforms allow you to record a goal and measure progress against it like the most basic robo-adviser does? That’s a huge miss.
Reporting for clients is terrible. Interfaces are non-intuitive and getting clunkier. The sector needs shaking up; those who disrupted need to be disrupted in turn. We can start by remembering who it is that pays for these things; and it’s not advisers. For planners and paraplanners, the best way to approach platforms is as a service you’re buying on behalf of your clients for a particular need, not as a sort of cure-all that you don’t study too closely in case it stops working. As with most things, platforms work fine if you know what you need and have picked a system that can deliver it. Go off-platform when it’s right, always poke your platform with a stick, and expect the best. We find the nature of competition has become much more service- orientated. It’s more about hard metrics, how the kit actually works