Fundamentally, this approach would challenge any business to maintain efficiencies, particularly if those efficiencies have only recently been realised.
Over time, assets held in model 1, which remain bundled share classes will naturally dwindle, and model 2 using semi-bundled share classes will be ruled out in 2016, but establishing how quickly this may happen will be an important part of the segmentation process. This will leave model 3 with clean share classes.
Some platform providers may decide to operate in solely post-RDR models if their existing business models are sustainable without rebates or commissions. This may sound like a good idea but establishing how to transition legacy clients with little impact is likely to provide the biggest challenge the UK platform industry has ever faced.
While asset growth across the platform business is expected, it is equally likely that the number of active platforms operating in the future will reduce. When you consider that the top seven platforms currently administer around 75 per cent of the total market, this suggests that the remaining 25 per cent spread among 25 plus platforms is simply not sustainable.
The platform industry is still at its core an administration service and, like most services of this nature, is built on scale. With the impending regulatory changes and the corresponding costs, this particular aspect is likely to become of even greater importance.
Interestingly, some of the new entrants to the market have defied the theory of participant shrinkage and those entering with a strong existing retail brand and access to existing distribution are unlikely to be put off.
Other such entrants could also include the likes of Google and Microsoft, which would no doubt look to ‘revolutionise’ the online platform proposition through their advanced technology. They would also be able to utilise their existing consumer access to great effect. If this does happen and they commit fully to the proposition, it is something that could change the landscape entirely.
So where does this leave the smaller platforms? The implications of CP12/12 will accelerate the expected consolidation as platforms may elect to close to new business to avoid burdensome and expensive developments, or by placing themselves ‘in the market’.
While there is little doubt that the intentions of the regulator are well-founded – and in the long-term both the RDR and CP12/12 will create a better environment for retail investing – there is also little doubt that the state of flux expected in the short to medium term will create some winners and many losers across the whole industry, including platforms. Who ends up in which category is something that only time will tell.
Russell Andrews is client relations manager of Momentum Global Investment Management
