The investment platforms market study

Switching platforms, using investment trusts and orphan clients

Gettyimages 697853664 WEB
Mickey Morrissey
Published: 13 Nov 2018 Updated: 13 Jun 2022

Mickey Morrissey: Let’s say you filled a room with 50 advisers and asked how many of them use a platform. I imagine most of them would put their hands up. And then ask how many of them have had issues with the platforms they use, and you would probably get the same response. Which is why the investment platforms market study, the subject of our first topic, is so important. I’ve just been reading the interim report, and we’ll be able to see the final report next March.

Investment Platforms

One big issue with platforms is switching from one to another. We’ve got an expert from a platform here, Dave Field from Novia Financial. So, Dave, do you have any observations on this?

Dave Field: Well, it used to take six to eight weeks and a lot of work to move a client from platform A to platform B. Today, we can move money in 24 hours. But for advisers, it’s not just about how do I get from A to B, it’s why am I going from A to B. It’s about going through the whole suitability process, looking at all the costs. Because every platform does things differently. And all platforms charge for things in different ways. So, justifying to the client why it’s right for them to move is a time-consuming process. We do try to help advisers work through this, but it does take time. And that’s time the adviser is going to have to charge for.

Alex Morris: One of the biggest issues is that you recommend a switch for all the right reasons, but increasingly aware clients are looking on the internet. They’re more aware of these products and they’re more engaged. They know exactly what price they might come in and out of the funds at. But there’s one thing I always drum into them — this is not just a piece of administration. If you come out of the market high and go back in low, fantastic. If you do it the other way around, you’re in trouble. Our job is to choose an appropriate time for the client to leave the market and an equally appropriate time to put them back in. You’ve got to be very careful, because if they lose a penny, they will come to you for the difference.

Tony Wassell: As I see it, there are two potential hurdles when transferring assets. The first is whether the new platform will accept the assets that are being transferred. And the second concerns the products that can be held on some platforms and not on others. Take junior ISAs, for example. Some platforms can’t hold junior ISAs, which may not sound like a big deal. But for a client with several million pounds who has bought their child a junior ISA, they want everything in the same place. It’s an issue and platforms are starting to realise this.

Mickey Morrissey: As some of you may know, our service includes investment companies and ETFs. We are aware that a number of platforms are unable to administer these, not efficiently anyway. I was going to ask you about this Nick, because you represent the AIC (Association of Investment Companies). And you’ve done a lot of work looking into this.

Nick Britton: That’s right. We’ve been trying to work with platforms to make investment companies available. And I think that battle has largely been won, in that most platforms, with one of two notable exceptions, allow you to hold investment companies. But being allowed to hold them, and being allowed to include them efficiently and cost effectively, are very different things.

Mickey Morrissey: Moving on slightly, I hadn’t really appreciated how many orphan clients are on platforms. There’s a lot of money attached to these clients and they are almost penalised for remaining on some platforms. One contact was telling me that they overcharge orphan clients as an incentive to leave the platform. I thought that was a rather unusual incentive.

Dave Field: It’s a difficult one for us, because we are an advice platform. When a client isn’t being advised, we have to increase costs to service them. So, on the one hand, we don’t want to penalise clients. But equally, we can’t just start giving them advice. What we try to do is go to them and say, ‘Look, we can give you a list of advisers available on the platform, or you should seek an adviser, or you should look to transfer to a more appropriate solution (i.e., a D2C (direct to consumer) platform, if you want to manage your own investments). So, if we look at it from the other side, is it fair that the increased cost of servicing is borne by the platform when the client is no longer paying an advice fee?

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Please remember investment involves risk. The value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.