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Comment: Three reasons replatforming is worth the pain

Better service, better functionality and opportunities in tech development are three main benefits of upgrading platforms.

Stories about platform technology upgrades, dubbed ‘replatforming’, have dominated the headlines in the past year. And rightly so.

Major technology upgrades rarely go off without a hitch. And advisers and their clients bear the brunt when upgrades go awry.

I am often asked why platforms would go through the pain of a technology upgrade, given the risks and costs. After all, most platforms were not built to deal with the diverse array of products and tax wrappers that exist today. What is more, regulation has changed since most platforms began.

Here are three long-term benefits of these technology upgrades: better service, better functionality and future opportunities.

Stories about platform technology upgrades, dubbed ‘replatforming’, have dominated the headlines in the past year. And rightly so.

Major technology upgrades rarely go off without a hitch. And advisers and their clients bear the brunt when upgrades go awry.

I am often asked why platforms would go through the pain of a technology upgrade, given the risks and costs. After all, most platforms were not built to deal with the diverse array of products and tax wrappers that exist today. What is more, regulation has changed since most platforms began.

Here are three long-term benefits of these technology upgrades: better service, better functionality and future opportunities.

Service

Advisers consistently rate this among the most important criteria for working with a platform. But service means different things to different people.

The most common definition I hear from financial advisers is: not messing things up and doing a good job of sorting things out when mistakes happen.

Management guru Warren Bennis once quipped, ‘The factory of the future will have only two employees: a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.’

Although people will always play a role in platforms, manual processes and interventions are fraught with risk. Platforms are all working to streamline and automate their processes as much as possible, in part to minimise the risk of error.

The more human intervention, the greater the risk of error. Better systems should mean lower error rates.

Functionality

Platforms need to adapt to changes in regulation and customer needs. Platforms running on a modern technology architecture are better equipped to respond to new market conditions, customer expectations and regulatory requirements.

Platform bosses tell me most of their change budget goes on dealing with regulatory and legislative changes. In the past few years we have had the retail distribution review, the pension freedoms and Mifid II to contend with.

Each of these has required massive investment from platforms to comply. Platforms with modern systems say they are better able to adhere to the steady stream of new rules.

In addition to the onslaught from the regulator, platforms regularly introduce new products and tools. Many platforms are upgrading systems to offer more functionality to manage exchange-traded funds and investment trusts on platform.

Moreover, better systems allow for the provision of streamlined tools. These include embedded capital gains tax calculators.

Modern tech systems can integrate more easily with back-office systems. Financial advisers, like all sane people, detest re-keying data. Better links to back-office systems can reduce the need to re-key client information, where mistakes are inevitably made.

Future opportunities

Open banking and artificial intelligence are the two opportunities to manage savings and investments mentioned most often.

Opening up banking data could well transform how we transfer and use money. Open banking forces the UK’s nine biggest banks to maintain their data in a secure, standardised form, so it can be shared digitally among authorised organisations.

Financial advisers often ask clients for past copies of bank statements as part of the initial fact-find and for cashflow modelling. Open banking will allow advisers and platforms to access transaction-level data from the bank.

With a dollop of insight from the behavioural economics playbook, clients could even be nudged to invest more when their balance exceeds a certain level.

Platforms are a repository for vast amounts of data. Analysing this data to better understand trends such as investor behaviour and optimal portfolios could revolutionise the way the public invests.

Tech check

Five things to ask platform providers about their tech provider:

  •  What technology underpins the platform?
  • What services are outsourced to that provider (custody, administration, front-end portal)?
  • What is the length of relationship?
  • When was the most recent upgrade?
  • What are the future plans for major changes or upgrades?

 

Heather Hopkins is managing director of NextWealth 

 

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