Regulation Including PROD
7 min read 19 Jul 21
As we count down the days to a return to (the new) normal, I’ve been thinking back on the changes we’ve seen in the platform market over the last eighteen months or so. While platform market geeks have been talking about platform consolidation for years, very little activity has materialised. Until now.
The last year and a half has been a period of unprecedented corporate activity, with platforms changing hands, splitting and recombining. Many “experts” expected that the big platforms would buy up the little ones, but that hasn’t really happened. What we’ve seen is a move away from lifeco ownership towards asset manager (Ascentric being part of this trend) and public ownership (now 30% of advised AUA from a standing start), and PE buying small and medium-sized platforms and crashing them together.
Although private equity houses have been involved in the advised platform market in a small way for several years, M&A activity has seriously ramped up of late. According to the latest lang cat stats, measured by advised AUA, PE platform ownership has increased by 650% over the last five years.
I think there are two main drivers for the investment we are seeing into the platform (and advice) sectors. Firstly, the advice sector not only remains incredibly resilient, dealing with the events of the last 18 month better than most, but with an aging population the demand for advice is expected to grow. A successful growing advice sector equals (or should equal) a successful growing platform sector, and the PE boys clearly fancy being in on the action.
Secondly, the platform market is relatively mature. We are still seeing new entrants, but some of the established players have been around for a while. This creates opportunities, especially for the small to medium size platforms to come together and start to benefit from economies of scale. In some cases PE has sensed an opportunity in the advised platform market to make one plus one equal a new Audi E-tron Quattro.
When a platform changes ownership, the important thing is not to panic. Remember that any change of platform ownership is always subject to regulatory approval: the FCA has to consider the suitability and financial soundness of an acquisition. And we’ve always said that having an owner that wants you is much better than the alternative. Having an owner that wants you to prosper and grow – even if it’s for their own interests – is better still.
From a due diligence perspective, our research tells us that commitment to the market is important to advisers too. Our State of the Adviser Nation survey ranked it third among advice professionals’ most important intangible considerations when selecting a platform, behind financial strength and quality of staff.
The lang cat house view on due diligence is that it can be boiled down to two killer questions:
The first question is all about financial strength, long-term commitment and how likely the provider is to be around for the long haul. Rather than the ownership model itself, the key thing is what the owner does. When deciding whether a platform is a secure home for client investments, continued investment, retention of quality staff, maintenance of service levels and the general smooth running of day-to-day activity are all arguably more important than the name above the door.
But these things can be hard to evaluate, especially as corporate activity in our sector seems far from over. As well as new deals to be done, there’s also the fact that PE firms will want to realise their investment at some point. You’ll need to decide what’s important to you when setting the criteria for this assessment and monitor it on an ongoing basis. If ownership changes, then when the dust settles, you can review against your criteria to decide what action, if any, to take.
Only time will tell how the increase in PE ownership in the platform sector will impact where advisers place new business. It’ll be interesting to see what happens next.
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