Platforms failing advisers who run their own portfolios

We all accept adviser platforms must innovate to survive. The shape of such innovation and the problems it should be addressing will be interesting to observe in the years to come.

With service concerns continuing to be a major issue for advisers, it should no longer be insightful to state that service quality and effective platform innovation go hand in hand.

An infrastructure built with the future in mind must be capable of evolving into an improved version of itself due to the emergence of newer technology and service and user preferences.

When the first adviser platforms came to market in the 2000s Americans considered George W. Bush sufficiently impressive to entrust the administration of the might of the United States to his stewardship, Manchester City was relegated in the 2000-2001 Premier League season and Google was three years deep into its launch – how times have changed.

But not so much in the platform world. Things under the bonnet, despite the noise and incredible investment, are still largely the same. Platforms are still being replatformed, designed and operated with the business model of days gone by.

Let’s dive into an example. After the RDR was introduced, it is widely acknowledged there has been a gradual shift by advice firms from fund picking to the use of model portfolios. Many firms now outsource to discretionary investment managers.

But for advice firms who do not outsource to investment managers, the risk and operational challenge is significant. For a start, many traditional wrap platforms are built with a brokerage mindset, which poses significant infrastructure challenges in a centralised investment proposition world.

Offering advisory portfolios allows advisers an element of control over their investment proposition.

There can be many events which trigger a client to speak to their adviser about their investments, and often the best response is no action.

However, when an action is required, updating or rebalancing client portfolios can be a complex and time-consuming task, especially for firms with a large client base. Common features include a process for creating and sending letters, checking replies, chasing late responders, amending portfolios, executing trades and archiving older versions.

According to a 2022 report sponsored by Copia Capital, titled ‘Centralised Investment Propositions: An overheating engine’, advice firms spend an average of 71 days per annum administering their investment propositions, with monitoring, maintenance and reporting representing more than 80% of those days being invested in this process.

This explains why we at Fundment have been working hard over the last 12 months developing an adviser portfolio management capability, with built-in campaign automation to streamline the process for collecting client authorisation and the subsequent trading and rebalancing, and I’m aware of the work being done by Parmenion to address this issue as well.

Outsourcing to investment managers has merits and value but running portfolios on advisory permissions should be manageable. With the regulatory imperative introduced by the new Consumer Duty, the consumer support outcome states consumers must be able to get the benefits of products and services they buy.

Therefore, service issues that disadvantage a consumer from this objective would lend a spotlight on this issue, and technology should be deployed to address this challenge.

This article first appeared in Money Marketing.