The Platforum’s Richard Bradley takes a close look at the FCA’s business plan for 2015/16 and reports on the themes applicable to the platform market.
For those who haven’t had time to read all 23,000 words of the FCA’s Business Plan 2015/16, we’ve pulled out a few of the themes we think are applicable to the platform market. (In case you’re wondering, the word ‘risk’ appears 162 times in the 23,000-word document, making up 0.7 per cent of the report – though I expect some hidden risks aren’t included in that figure.)
Take time for technology
Technology is one area, which is also on our radar this year. One of the concerns of the regulator is that technology systems are often built up over time as firms keep up with developments, rather than being replaced. This could potentially lead to more complex, less resilient and less secure systems.
More platforms are outsourcing elements of their platform technology to other groups – Bravura, FNZ, GBST, IFDS and SEI are sitting behind a sizeable and increasing proportion of the platform market. There are pros and cons of outsourcing, but the current direction of travel for platforms is clear. We’ll be doing some work over the coming months on the impact of these technology choices on platforms, advisers and consumers.
On the D2C side it was therefore interesting to hear about Willis Owen’s recent platform developments. In a relatively short period of time Willis Owen has built a new platform based on Pershing for transaction/custody, Avalon as ISA and SIPP administrator, Time4Advice’s Curo as the CRM and Quai linking the front-end to Pershing. It’s amazing what tech you can pick up ‘off-the-shelf’!
Sunset on the horizon
Large back-books came up as another subject under scrutiny. This resonates particularly strongly in the platform market at the moment, with the ‘sunset clause’ date fast approaching. From April next year any fund manager rebates to platforms will have to be passed back to clients in full, in many cases ending adviser commission payments. How advisers and platforms deal with transitioning the remainder of these clients will likely be under close scrutiny.
The retirement revolution
Life companies which have built up books through the workplace now have a greater challenge and responsibility to ensure that their customers are aware of their options on-retirement. There’s already poor take-up of the Open Market Option, so you can imagine the lack of understanding of UFPLSs and drawdown. Many companies will point clients towards advisers, but there’s a huge question mark around the protection of those clients who can’t afford (or are unwilling to pay for) advice. We think the number dramatically underestimating life expectancy will far outweigh the number buying a Lamborghini.
Finally, there are the changes to pensions and income products. We’ll see plenty of new products for the at-retirement market, and plenty of new customers. The regulator has flagged up the dangers of more complex products reducing customer confidence and a lack of competition leading to poor value. It’s also worth keeping in mind that many new customers will never have owned an investment outside of a workplace pension scheme, so will likely be deemed by the regulator to be more vulnerable and require more protection. The FCA anticipates launching work in 2016 to look at the suitability of advised purchases and the information provided for non-advised purchases.