All this week, we bring you a Guide to What the Experts to Say; the top insights from the Morningstar Investment Conference in London; emerging markets, stock picks and the impact of politics.
Three quarters of investor cash will sit on just four investment platforms by 2022, analysis from Platforum revealed at the Morningstar Investment Conference last week in London.
“Currently the top four platforms have 44% of retail assets, but there will be quite a shift,” said Heather Hopkins, research director at Platforum. “The consolidation towards a small number of players has been driven by customer choice, not by merger and acquisition activities. Some of the advisers are still using six different platforms, and gradually consolidating themselves into smaller number of platforms.”
Last year, Aegon bought Cofunds from Legal & General (LGEN), making Aegon the largest investment platform in the UK.
“Our perspective on investment platform is the winners will take most of the market,” said Hopkins.
A survey carried out in March this year by FundsNetwork, the second largest platform in the UK, showed that 83% of advisory firms believe that the platform market will consolidate over the next few years.
Key drivers behind the consolidation, were the inability of some platforms to reach sufficient scale, too many platforms in the market, the ability to sustain profitability and the level of investment required.
“With the platform market expanding rapidly over the past 15 years or so, we have now reached the tipping point where there are too many players in the market and consolidation will be inevitable,” said Pat Shea, head of FundsNetwork.
Pensions Drive Business Growth
Thanks to the introduction of the pension freedoms, there has been a massive spike in the amount of trading volumes on adviser platforms, said Hopkins.
“82% of net sales on adviser platforms went into a pension wrapper in the last three months of 2016 and 71% of financial advisers have seen the number of new pension clients increase. What we have heard from advisers is that demand for advice around pensions is continuing and not slowing down,” she said.
Of the 15 fund platforms included in the Platforum report, Hopkins highlighted the “phenomenon” year on year growth rate of Hargreaves Lansdown (HL.). Hargreaves has an annual growth rate of 24%.
“One key driver for growth is that Hargreaves Lansdown encourages their customers to consolidate their pension assets,” said Hopkins.
More recent data from The Investment Association shows a similar picture of how popular fund platforms are. The net sales of the top five fund platforms, Aegon-Cofunds, Fidelity, Hargreaves Lansdown, Old Mutual Wealth and Transact, in March 2017 were £1.4 billion, up from £452 million the same month last year.
The data was also divided into four product groups, in which personal pensions had the highest net sales of £901 million in March 2017, followed by ISAs £577 million. However, insurance bonds and unwrapped products saw net outflows of £3 million and £31 million respectively.
While online platforms are considerably cheaper and more efficient than buying off individual fund providers, investors should still be mindful to compare the different charges of fund platforms.
In April the Financial Conduct Authority said it planned to launch a review examining whether platforms enabled retail investors to access investment products that offered value of money.
