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Investment platforms ‘face consolidation’

The investment platform market could face major changes in light of the Retail Distribution Review

Monday 1 July 2013

Investment platforms ‘face consolidation’The number of investment platforms could fall in the coming years, as a result of the financial impact of the Retail Distribution Review (RDR), according to Deloitte.

The RDR was launched by City regulators at the end of last year, in a bid to increase the transparency of investment advice.

It seeks to raise professional standards among financial advisers, while ensuring that consumers are charged fairly when they sign up for guidance regarding their investment options.

Pluses and minuses
Andrew Power, lead RDR partner at Deloitte, said that despite its good intentions, the review could have positive and negative implications for the investment platform industry.

He said advisers will continue to make use of the services offered by platforms in light of their “RDR-compliant, fee-based business models”. This demand should increase the value of the assets held by platforms by £400 billion over the coming five years, Mr Power said.

He believes that the value of their assets will jump from around £200 billion currently to £600 billion by 2018.

Squeezed revenues
Despite this improvement, the expert warned that the RDR reforms could have negative consequences for the platform sector, which may ultimately reduce the size of the market.

Mr Power said: 
“One consequence of the RDR is that margins will be squeezed, with revenues for platforms likely to fall from about 30bps to 20bps. For a platform provider, this could increase the breakeven point from around £20 billion of assets to about £40 billion.”

Platform market to consolidate
Higher breakeven points and tighter margins mean it is likely that the intermediary platform market will be forced to consolidate in the next few years, Mr Power added.

While around 30 platforms are currently in operation, the changing financial climate could reduce this figure to “fewer than 10 large providers and a few specialists”, he concluded.

RDR specifics
In specific terms, the RDR is designed to force financial advisers to explicitly signpost the costs they charge for their services, while ensuring these are kept separate from other investment-related fees.

While conforming to a consistent set of professional standards, advisers also need to state whether they operate independently, or on a restricted basis.

Copyright Press Association 2013

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