The debate around adviser-as-platform has become increasingly polarised. At one end, advisers are being vociferously encouraged to take on full-fat platform ownership. At the other end, there is a widely held belief that advice firms should focus on their core USP of advising clients, since full-fat ownership involves full-fat costs and full-fat risks.
The reality is a little less binary. There is, in fact, a range of options open to advice firms. Considering these options - which involve varying degrees of risk and responsibility, revenue and cost, and control over the client experience - compels advice firms to examine what it is they really want out of their ‘own platform' and whether they have the skillsets and resources required to go ‘all in' on platform ownership.
The fact that larger adviser firms are looking for more control of the client experience is unequivocally a good thing. It demonstrates a commitment to providing a consistent client experience and good outcomes under the Consumer Duty. For a select group of the larger advice firms with significant scale in assets and advisers, it makes sense to consider full platform ownership.
No need to go all-in on platform ownership
However, for most other medium-to-large firms looking to take more control of their clients' experience, there is no need to go ‘all in' on platform ownership.
White labelling can give these firms the choice over the extent to which they drive the client experience without incurring the greater risk and cost burdens of running their own platform.
The White Label spectrum
The option to white label can fit across the spectrum, from manufacturing to distribution, however firms must be clear on where they wish to sit and the impact that has on their obligations.
Consumer duty accountabilities shift depending on the role you take, with greater cash being needed the closer you move towards the manufacturing end, to cover regulatory changes, risk management and change management.
The more responsibility a firm takes on, as they move further towards manufacturing, the greater the potential revenue. However, firms must ask themselves if the high risk is worth it.
The perils of full platform ownership
The key question for advice firms considering the adviser-as-platform route are the increased costs and risks outweighed by the extra basis points earned on platform fees?
A totally bespoke platform carries not only high risks of ownership but high cost of delivery and increased complexity.
Unfortunately, these risks cannot be outsourced away and the platform owner is ultimately responsible for ensuring third parties are fit for purpose. We also know that platform profit margins are skinny, under constant pressure and require continual levels of investment.
There are some potentially serious cost considerations beyond the basics that some advice firms may not have fully considered. Take administration errors, for example, for which they are now liable. If a client instructs a trade and it fails to happen on time, yet the markets move and the client loses out, then, under best execution rules, the platform needs to make good that shortfall.
Likewise, if a change in investment policy requires a programme sale of an asset within a model portfolio and the payment from the asset manager doesn't arrive by the end of the day, then under CASS rules it is the platform that must cover the shortfall. For example, imagine £500m is run within the model and there is a policy change to sell 5% in one fund. This £25m must be covered by the platform using its own money until the sale proceeds arrive. Any advice firm considering full ownership needs to have substantial capital reserves in place to cover such eventualities.
There are some other thorny issues to consider. A platform is invariably a connected system of underlying solutions so if something goes wrong, you need to ensure you have the appropriate oversight and controls in place with each counterparty so that you can quickly identify and resolve issues. With connected independent systems, this is not always straightforward since you may find the technology suppliers believe other parties in the tech stack are responsible. And, if the technology issues result in losses, can you seek the appropriate redress from your system providers?
As it is a highly commoditised product, firms won't benefit from any differentiation at a product level by moving into manufacturing, as the real opportunities occupy a space within user experience. This is where the UIUX layer comes into play through a white label offering such as Embark's, providing a unique service model that allows you to take ownership without taking the risk.
If you use a technology provider and become a co manufacturer or manufacturer in your own right, then the level of risk and cost rise significantly.
Embark offers a variety of white label models that support firms through centralised investment propositions, planning tools, investment research and consultancy, integrated advice, and a range of products and services that fit specific capability gaps, while not burdening firms with additional operational risks.
There is no doubt there are some operational efficiencies to be gained by the advice firm taking on some of the tasks involved in platform ownership, especially where it enables the removal of an unnecessary link from the advice fulfilment chain. However, not all tasks can be taken in-house by the adviser, so the extent to which streamlining can occur has limits. If streamlining efficiencies were to exist at scale, we might expect adviser-as-platform ownership to result in a lower total cost of advice, but we have yet to see the evidence that confirms this is the case.
An attractive middle ground in a polarised debate
We believe white-labelling can be a smart solution for many adviser firms as it gives them greater control over the client experience and access to robust technology and propositions at a fraction of the time, cost, and risk that would be incurred were they to develop their own platform from the ground up.
A white-label solution can also be tailored to the adviser firms' needs; it starts with the provision of the core technology, but a firm may wish to add hosting of platform products or consider a full ‘white label plus' package that includes greater levels of support and management. These options occupy what we believe is an attractive middle ground for many firms in a debate that has been mischaracterised as a binary choice between full ownership and the status quo for too long.
