PA ANALYSIS: Are platforms facing an ‘existential crisis’?

Added 16th May 2017

As certain platform businesses boomed in Q1 with year-on-year sales over 30% higher, others posted huge losses, begging the question: are they facing an “existential crisis”?

PA ANALYSIS: Are platforms facing an ‘existential crisis’?

Total platform assets under administration (AUA) were up 6% in the first quarter of the year and hit £520bn, the latest data from Fundscape has revealed.

The boom in platform business was evident with gross sales nearly a third (31%) higher than the first quarter of 2016, and 10% higher than the last quarter of 2016.

Bella Caridade-Ferrerira, CEO of Fundscape, said investor sentiment had begun to improve towards the end of 2016 after three “difficult quarters” previously.

She said: “Despite the likelihood that the industry will be buffeted by geopolitical headwinds this year, we expect platform business to maintain a steady course.

“Pension activity will be the driver.

“Accessing pension freedom through DB transfers is a top priority for investors nearing retirement, and this will keep the industry buoyant throughout 2017 and well into 2018.”

However, the costs of running these platforms has grown with many posting losses, so how bright is their long-term future past 2018?

Abraham Okusanya, founder of research consultancy FinalytiQ, raised concerns on the long-term viability of the platform industry in comments published in AJ Bell’s newly launched Due Diligence Hub.

He said very few made money, adding: “I’m afraid the picture isn’t any less grim as our latest report casts doubt on the long-term viability of many platforms.”

“The sector is in for a difficult time ahead and we expect more shareholders to cut their losses on unprofitable ventures.”

He added: “Some platforms are facing an existential crisis.”

Only 15 out of 26 platforms Okusanya and his team studied in an annual platform profitability report reported a profit in 2016, with a total combined pre-tax loss of £19m recorded at the end of 2015.

The loss in 2015 signalled a 371% decline from the pre-tax profit of £7m at the end of 2014.

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Louise Hill

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Louise joined Portfolio Adviser in December 2016 as one of the editorial team’s news reporters based in London. Originally from Liverpool, she is an NCTJ-qualified journalist and began her career in 2014 working on local newspapers.

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