A simple due-diligence question advisers often try to answer is; what are the odds a platform will survive in this intensely competitive market place?
As clients face the prospects on prolonged period in retirement, it’s crucial that a platform will be around to ensure continuity in the delivery of advice. This requires heavy investment in technology and service, to keep the platform relevant in meeting client needs.
Given the fate of UK’s largest platform Cofunds and Axa Elevate, advisers often ask ‘who’s next? Without a crystal ball, it’s impossible to know the answer for sure! But an analysis of the financial statements of platform offer some insight on their financial standing and long-term sustainability.
In our latest Adviser Platform Report, we introduce a survival matrix to provide a simple, powerful snapshot of a platform’s financial standing and likelihood of surviving in the marketplace.
The matrix is our own adaptation of the Growth-Share Matrix, which is a model developed by Bruce Henderson of the Boston Consulting Group. Henderson originally created the model as a way to help companies think about the priority (and resources) that they should give to their different businesses. Ultimately, it helps companies decide which of their businesses are worth keeping and which they should consider divesting.
So we’ve reverse engineered the matrix as a way to think about which platform is likely to survive in the market place over the long term. Adapting this to the platform industry, we classify 26 platforms into nine categories depending on their market share (by AUA) and their profitability (as measured by pre-tax profit margin.)
The nine categories are;
- Market Leaders: these platforms have a high market share (more than £20 billion of assets) and a high level of pre-tax profit margin (more than 15%), in comparison to rest of the market place. They are clear leaders, head and shoulders above their peers.
- Rising Stars: in terms of market share, they are mid-sized players but they’ve mastered the art of turning that into the bottom-line. This allows them to continually re-invest in service and technology. They have proven their business models and have demonstrated they can not only survive but thrive. These platforms are the ones to watch!
- Niche Players: these are the small giants. Assets might be low but profit margin is very strong. Small market share may just be a result of a conscious strategy to target a particular niche or a very clearly defined sector of the market.
- Cash Cows: these are large platforms in terms of AUA with mid-level profitability. This may be because the owners have other intentions than just bottom-line – such as funnelling assets into their asset management businesses.
- Average Joes: these are mid-sized platforms by AUA and equally of mid-level profitability in comparison to the rest of the industry. They are ticking along and surviving
- Slow Starters: these are small platforms by AUA with mid-level profitability in comparison to the rest of the industry. Winning market share will be a daunting challenge for these platforms and the need for never-ending reinvestment in service and technology
- Question Marks/Lost Cause: these are platforms with large market share by AUA but have failed to turn that into meaningful bottom-line. Often they are being propped up by a deep-pocketed parent company and the big question is, how long will that go on for?
- Problem Child: this is a term we use to describe platforms with medium market share but low profitability or loss-making. They may be gaining assets, which means they are doing something right but that doesn’t necessarily translate into real bottom line, yet. A turn around may be necessary for them to survive.
- Non-Starters: these platforms have low market share and low profit margins or more likely, they’re making losses. This may be because they have recently entered the market place. Given the competitive nature of the platform market, winning market share would be quite a challenge, even with unique technology.
So is your platform a market leader or a problem child? It is a rising star or a lost cause?
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