Independent research into some of the issues confronting advisers who take the plunge “off-platform” also identifies occasions when it makes sense to move, writes Linda Elkins.
Over recent months there has been some noise in the market about financial advisers considering a move off-platform.
Whether the driver is the growth of self-managed super funds, the myriad of industry and technological changes or a preference towards direct investments, it has become increasingly important to us at Colonial First State that we understand the value that our platforms bring to advisers’ businesses and their clients.
Conscious of our position as a leading platform provider, it was critical to us that we obtain independent views on the off-platform debate, grounded on facts and true costs. With this in mind, we commissioned some research from Praxis Partners, a leading independent financial services consulting firm, to explore some of the ‘off-platform’ adviser issues.
For the purposes of the case study, we defined off-platform as administration arrangements under which the assets were held directly by the client (out of custody) and administered through a combination of software and broking services.
Praxis conducted a review of two adviser practices, one on-platform and one off-platform, and performed extensive interviews and analysis around:
- The advice process
- Fee methodology
- Preferred investment types
- Administration processes; and
- Resulting practice financials.
This helped Praxis paint a picture about the business realities of on-platform versus off-platform operating models.
There were three broad conclusions we derived from the research.
Firstly, there is demonstrable value from a total cost perspective for most advisers and their clients in operating on-platform.
Secondly, there are significant intangible benefits, particularly around the ability of planners to focus on client-facing time and business scalability; and thirdly, there are certain circumstances where it may make sense to administer clients off a custodial platform.
Financial value and cost benefits
The key benefits in running clients on platform is the access for advice businesses, and therefore their clients, to a whole range of services more cheaply than they can be done in-house.
The reality of the cost equation for most advisers is that moving off platform simply transfers the cost of administration into their business.
The case study found that the client administration costs for the business off-platform were four times higher compared to having the business on-platform.
This was an interesting finding and one which quantified what makes sense intuitively: that is, that large, well-resourced platform providers will achieve cost benefits through the scale use of technology and specialist teams. This scale results in overall lower administration cost and therefore savings for clients.
Even if the cost equation was neutral, there is a shift in focus from looking after clients and managing the business to allocating time to administration and ‘fire fighting’.
This was particularly acute in regards to corporate actions, with one adviser realising just how technical and time consuming, as well as fraught with risk of error and compensation, such actions can be.
Ability to manage scale
The second finding was around the difficulties managing scale in an off-platform model. Both the on- and off-platform practices acknowledged that most advice businesses can only become truly scalable when they outsource the technical aspects of platform administration, custody and corporate actions to a partner with specialist people and resources – like a platform.
Whilst it might be manageable to run a portion of clients off-platform, once this number hits critical mass the need for robust systems, processes and focus from business principals is unavoidable and costly.
Custodial platforms
The third finding was that there are circumstances where operating off a custodial platform can make sense.
The off-platform advice business in the Praxis research was a good example of this, whereby for the adviser’s small number of high net worth clients, they preferred to manage client account administration and processing off-platform.
Overall, before you consider moving your practice off-platform, you will need to have holistically weighed up both the true cost and the time impacts to your business.
As one adviser noted following their business’s move back to operating on-platform, “as a business, we certainly now know what we’ll be focusing on, and what to leave to the experts”.
Linda Elkins is executive general manager at Colonial First State and recently spoke at Money Management's Platform and Wraps conference.
