… is taking away large amounts of assets
[dropcap letter="W"]here now for platforms? Over the last 10 years, the amount of Assets under Administration (AUA) has built up to the point where over £232 billion is now under administration and over 75% of all adviser flows are passing through platforms.
The market for platforms in funds for investment may be starting to plateau. The difficulty for platforms now is to find a strategy for future expansion. Obviously they can try to increase market share, but in a market that is now growing more slowly, this will be a dangerous route to take with the only way to compete being on charges, already being squeezed under relentless pressure from the government and regulator.
However, there is another area that few platforms have seriously addressed yet. Having concentrated on getting people to invest, they have ignored the fact that pension savers in particular need to draw down these investments once they reach retirement age and very few platforms provide the products and facilities to allow them to do so.
Originally everyone used their pension pots to buy conventional annuities. This meant that funds invested through platforms were moved to the life and pension companies, the traditional annuity providers. However, over the last 5 years, the market for conventional annuities has been dropping as the global crisis, and resulting quantitative easing drive down bond yields and therefore the resulting annuity payments. As a result, people are searching for products, which continue to grow their assets while providing an income; these are the very type of products that platforms specialise in.
Hence the dramatic increase in popularity of with-profit annuities, variable annuities and income drawdown products, decumulation products that allow people to take an income while still allowing growth in the remainder of the fund. These products provide the ideal way for people to cope with longer retirements.
The life and pension companies are primarily providing these products and yet they are a perfect fit with the capabilities of the platforms. Indeed, a tiny number of platforms have started the move towards decumulation products but it is clear that this is just the slight slipping of stones that presages an avalanche. Any platform that isn’t considering how to move to the provision of full decumulation products is going to lose out on a huge section of the market, which is only going to grow over the next decades.
Platforms also have the advantage of familiarity to the customer who used them to accumulate their pension fund. This factor is going to play a bigger part than is currently realised in the provision of financial products in the future. As the amount of advice drops and advice becomes more expensive due to the effects of the Retail Distribution Review, average consumers will tend to retreat to the comfort of what they know. This will be either the big-brand life assurer who has been around since time immemorial i.e. the Prudentials, Scottish Widows and Legal & Generals of the world but it could be to stick with the platforms that they have trusted to manage their money over the accumulation phase.
To just allow this money in pension pots to stream away as soon as the client hits their chosen retirement age seems to be a very casual thing to do. And yet, that’s the position that many platforms are currently in – letting their clients depart, clients who are seeking products that invest and grow while providing a return each year that can be used to live on.
Platforms that haven’t looked seriously at entering this market will become feeders for those who do provide at-retirement products and in doing so will throw away all the good-will they have built up with their clients, along with all the assets that are invested in their funds.
The answer seems obvious – broaden your offering or stagnate.
What do you think? Let us know in the comments below!
— Chris Hitchens (@Chris_Hitchens) February 28, 2013
To view this our brochure on At-Retirement Solutions for Platforms as a downloadable PDF please click here: http://exaxe.com/wp-content/uploads/2013/02/Exaxe-Platform-Solutions-web.pdf
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