Changing customer requirements will power growth in the platform market and the Retail Distribution Review will hasten this growth as the old commission powered life company model falls away.
However, the most significant driver of change will be the FSA's final decision on platform rebates.
Currently the FSA proposes to permit fund rebates where these are passed to investors in the form of additional fund units.
Aligned with this, FSA proposes to ban cash rebates and all other payments from fund groups to platforms.
If this position prevails, the business model of wraps will be severely challenged and it will be interesting to see how they respond.
More generally there are likely to be four features during 2012 which will define the winners and losers in the platform market of the future:
- Pensions will power growth in the platform market.
Platforms already dominate sales of ISAs and collective investments (Unit Trusts / OEICs) and this is set to spread in to the pension market with platform pensions increasingly displacing SIPPs. Platforms will account for more than 50% of all new private pensions by 2015.
- Decumulation options.
Platforms currently focus mainly on helping people accumulate wealth but there is increasing demand for flexible ways to take income from a portfolio of platform investments.
- Margin compression.
Platforms will see their margins squeezed down from 30-50 basis points today to 20-25 basis points in 2015. This will result is around ten major platforms surviving in the market by 2015.
- Passive investments.
Investors that have been burnt by stock market volatility are increasingly looking for alternative investment options and passive investments and guarantees will play a bigger role in portfolios of the future. Passives will account for over 1/3 of platform assets by 2015
Nick Dixon, marketing director at Skandia, comments:
"2012 is likely to be the busiest and most competitive year to date for the platform market. There needs to be significant progress made to support the evolving needs of customers and financial advisers and the winners will be those platforms that rise to this challenge.
"Oddly some of the wraps seem to be assuming it will be business as usual for them post RDR but in reality their business models face a fundamental challenge.
"The FSA is currently minded to ban cash rebates. Most wrap business models rely on cash rebates and if these are banned their model has to change.
"Many wraps seem to be focusing on getting the FSA to change its mind rather than on building a solution.
"Of course supermarkets will have to change their business models too but they each have a plan for doing this and because they are well established businesses they are used to adapting to changing market forces.
"The RDR is important but it is the FSA's decision on rebates and evolving customer needs that will define the platform market of the future.
"Any platform resting on its laurels and assuming the RDR alone will make them a success is likely to be sorely disappointed come 2013."
