Difference and Differentiation: What next for investment platforms? - Paper - Page 6
Tackling the dabbit:
What is a product provider & what is a platform?
Often the best place to start with any ‘what is a’ question is to look for
established definitions. Fortunately, as a regulated industry, the FCA has
built up a glossary of terms to help navigate the myriad sourcebooks
of rules and guidance.
Product
provider
Duck
Platform service
provider
Rabbit
The FCA Glossary tells us that a Product Provider
is a firm which is:
(i) a long-term insurer;
(ii) a friendly society;
(iii) the operator of a regulated collective
investment scheme or an investment trust savings
scheme; or
(iv) the operator of a personal pension scheme
or stakeholder pension scheme.
If we look for a platform definition there’s a wealth
of choice, but the one that stands out is Platform
Service Provider. The helpful definition here is “a firm
providing a platform service.” This platform service is
then defined as a service which:
(a) involves arranging and safeguarding and
administering investments; and
(b) distributes retail investment products which are
offered to retail clients by more than one product
provider;
but is neither:
(c) solely paid for by adviser charges; nor
(d) ancillary to the activity of managing investments
for the retail client.
Fundamentally, it looks like the distinction is that the
product provider makes or operates a ‘thing,’ and the
platform service then makes a bunch of those ‘things’,
from different product providers, available to retail
clients. If we did dig into some of the definitions a bit
further though, we discover that one of the ‘things’
covered by ‘retail investment products’ is a personal
pension scheme.
So far, so boring. What does this mean in the real world?
The investor is unlikely to consider this distinction
particularly relevant; where they use a D2C platform
they will consider HL, Fidelity, or AJ Bell to be the
product provider. For an advised client, it would be
a similar perception for names such as Nucleus,
Embark, or M&G. From an adviser perspective the
distinction is around the products offered: a ‘platform’
is typically where new liquid investment business is
placed, the ‘provider’ is where some of the less liquid
and more mature products are found – those policies
with guarantees, alternative assets, or some life
protection elements for example.
As we look across the market today, over a decade
since the handy definition of a platform service
provider was introduced, we can see that the vast
majority of ‘platforms’ could be classed as both a
platform provider and a product provider; largely from
provision of their own SIPP but also where there is
life company or asset manager ownership for some
collective investment schemes. We can also see this
in the acquisition path of the last year – the tie up
of Nucleus, James Hay, and Curtis Banks confirming
the blend of platform and pension provider. In fact,
there may only be a handful of pure ‘platform
service providers’: those who may be an ISA Manager
but run a SIPP white-labelled from a third-party
product provider.
It is, though, the life company or asset management
ownership that generates so much excitement in
the retail adviser platform market and the perceived
threat of vertical integration, but it might be helpful
to think through this segmentation and what it means
in practice.
6
