EXECUTIVE CHAIRMAN, GEKKO
INVESTMENT platforms came about because switched-on providers realised that the more choice investors were given, and the more they understood the wisdom of diversifying their investments, something needed to be done to simplify the whole investment process.
More choice and greater diversification meant investors had to deal with a host of detailed (and often complicated) paperwork. This could include application forms and detailed investment reports – not to mention the onerous task of calculating capital gains and other taxes.
So platforms were introduced to minimise paperwork, deliver comprehensive and consolidated reporting and to improve the whole investment process. Investors could therefore maximise the benefit of choosing from a wide choice of opportunities.
Yet investors were not alone in benefiting from the emergence of platforms. Advisers have gained too. Platforms allowed them to focus on creating investment portfolios for clients, at the same time as building a trail of introductory and on-going commission from product providers. Platforms brought a high degree of focus, convenience and satisfaction to the adviser-client relationship, as well as a means of ensuring that advisers satisfied the ever-increasing demands of the regulator.
However, as with all good things, the passage of time and economic circumstances have made their mark. This changed what once rendered platforms so beneficial to both sides of the investment process. The poor economic environment of the last 10 years delivered, when compared with the previous decade, very poor investment returns. At the same time as clients were seeing these meagre returns, they consequently and understandably noticed the costs involved with portfolio management. Indeed, this has become such a problem that you often hear investors saying that they may as well take on the responsibility of managing their own investments. They couldn’t do any worse than their adviser, and at least they would have the opportunity to reduce the cost of managing their money.
The ability to reduce costs came about because platforms improved and simplified their offering, and this broadened their appeal beyond savvy or experienced investors. And as more and more execution-only platforms have come to the market, the usual thing has happened when supply increases. The cost of executing investment choice directly with manufacturers, compared with doing it through an adviser, has plummeted.
As if these economic factors were not enough to see the responsibility for investment choice swing away from advisers to the investor, the market is now looking at one more harbinger of change that will have even more dramatic implications for investment platforms.
The introduction of the retail distribution review next year will well and truly put the spotlight on the cost of investment advice. As investors face the prospect of paying for advice in a more transparent and up-front manner, and as advisers try to adapt to the new regulations by experimenting with different fee structures, a great swathe of investors will closely investigate the process of self-directed investing. They will look for platform providers that will deliver cheaper execution charges, and more relevant information to their needs and wants. They will expect to see model portfolios based on their appetite for risk. They will demand wider product and service choice.
It’s an exciting time for investment platforms. The one that can deliver a constant flow of improved (and completely new technology-led) solutions, at the lowest price, will have an advantage in this expanding market.