Why wealth managers are behind the times on platform use

Platform use is booming. From a base of around £10 billion in assets managed and administered via platforms 10 years ago, the figure now stands at a shade under £170 billion in the third quarter, and the number of competing providers has risen from low single digits to almost 30.

But wealth managers have, if anything, been behind the curve, however.

While the number of IFAs choosing to invest via a discretionary portfolio is rising all the time, in absolute terms the figure remains a very small fraction of the whole: just 10.9% of IFA clients versus 37.3% invested via platform model portfolios and 20% through multi-managers.

Head of marketing at Transact Malcolm Murray insists that wealth managers have concentrated their fire in the wrong places, paying to sign up to platforms which have not connected them to the client base that they hoped for.

Others such as Praemium managing director John Martin point out the still fractured nature of the online distribution chain makes economies of scale hard to find, while Novia chief executive Bill Vasilieff points out that most platforms fail to provide IFAs with the level of ownership they need.

Dividing factors

So what has been the primary factor dividing successful platform strategies from unsuccessful ones, and what can you do to avoid them?

Richard Bradley of consultant Platforum makes a distinction between the upper end of the platform scale, where discretionary managers have managed to consolidate the market much more, and the bottom end with low economies of scale.

The company’s research shows that discretionary fund managers (DFM) contracts make up 34.8% of the market for portfolio management above £1 million versus just 23.2% for portfolios of between £100,000 and £500,000, falling to low single digits for client sizes below this.

This in turn points to one of the biggest problems for discretionary wealth managers: in a fractured market advised assets are still very hard to pick up in large amounts.