Note: This is an article I wrote on execution-only platforms, originally for AdviserLounge
News of yet another adviser firm launching or planning their own execution-only platform have now become a daily feature in industry press. While I never doubted that consumers are paying no attention whatsoever to these news, it is now becoming painfully boring even to those of us who work in the industry (or is that just me?)
I get it; RDR and the demise of commission means that some people will be unable/unwilling to pay for advice and advisers are plotting to have a piece of the 5m or so ‘orphaned clients’ cake. But given the plethora of options already available to prospective investors in this space, most of them far more established and possibly more cost effective than what advisory firms can offer, why does anyone think consumers will use these services?
There may well be a case where a firm is setting up execution-only platforms primarily for existing clients they can no longer service and possibly for firms who might want to provide advice to clients, for a fee and then send the clients onto their own platform to implement. Call me cynical but I am really struggling to see how jumping on the D2C bandwagon is commercially viable for advisers, especially given the lack of differentiation in many of these services that we have seen so far.
The point is, you can’t compete on price in this space (CavendishOnline, ClubFinance etc do it cheaper.) Nor can you on the basis that you provide ‘in-depth research’ (HL, BestInvest etc probably do better. At least investors think they do.) And no, transparent charging structure probably won’t cut it either (ATS, rPlan etc already are doing that pretty well.) So where is the differentiation?
D2C business is really a margin business; firms will be lucky if they end up with 15-25 basis point after the platform engine provider has taken their own cut. So to be viable, you need a hell lot of dough, which means clients in their thousands rather than hundreds, especially if the targets are ‘low value’ orphaned clients.
May be if a firm brings a unique innovation into this space; like wowing prospective investor with a super UX and intuitive goal planning and asset allocation tools or by letting clients aggregate their bank accounts/credit cards along with their investments, or offering some form of gamification; we might hope that the novelty will attract consumers over more established players.
So, for all those thinking of launching their own execution-only platforms, please innovate or we might as well not bother.
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+1 to this 🙂
Abraham, while I thought your article was succinct and to the point but you unwittingly climbed aboard your own slippery slope. Ok, using your style of thinking, do we really need another blog about this that and the other when there are so many other worthwhile web sites offering content that contains content the author took more than ten minutes to dream up? Of course we do, that’s what freedom of expression is all about.
In the same spirit if a financial adviser wants to set up their version of an execution only platform then so be it. I don’t think for a moment you would make the same observation if somebody announced they were intending to become a financial planner. While there are many thousands of such individuals that’s what people do.
Then in a blink of an eye you say … Maybe if a firm brings a unique innovation into this space .. exactly. That’s the point, don’t be surprised if Twenty20 Investments along with plenty of other firms continues to try to push the envelope with tools and ideas, but that’s no reason to be down on those that try. Yes, me too. What’s Finalytiq’s plans to innovate in 2015?