Platforms face inflection point as competition cuts margins

Added 21st July 2016

The ongoing technological revolution has levelled the financial services playing field globally, argues Jaco van Tonder, head of advisory services at Investec Asset Management - and with that levelling comes both risk and opportunity.

Platforms face inflection point as competition cuts margins

Speaking from the firm’s Cape Town offices, van Tonder said that while there are a number of things the South African market can learn from other jurisdictions, there are also a number of strategic challenges facing the advice industry globally, many of which are going to need to use technology as part of the solution.

He added: “When it comes to technology, no country has a head start. We are all in the same position to harness these tools."

Primary among these is what van Tonder describes as “the classic problem child” – those clients that fall in the middle: too rich to need just basic funeral cover and too poor to have wealth managers clamouring to manage their money.

Advice gap

In the UK this is referred to as the advice gap and is, indeed, a global problem. But, it is one that van Tonder said will only be solved through a combination of two things: “One, the regulator needs to realise that these people need a new type of advice. Restricted or limited advice that it is focused on a particular need for a client with a fairly simplistic need set. But, importantly advice on which one can limit the liability for the adviser.”

The other part of the equation, said van Tonder, is technology, which can help to make the whole proposition cost effective. This so-called robo-assisted advice, van Tonder said will enable firms to lower the entry point for advice. “We need to be pragmatic about the solution,” he said.

“The challenge for platforms now is not how one remains relevant to advisers,... the big problem is the intense level of competition which makes for very small margins.”

Technology is also an ever-increasing part of the platform space and is likely to continue to play an exceptionally large role.

Platform views

“The challenge for platforms now is not how one remains relevant to advisers, the recent regulatory changes globally have done that very well, the big problem is the intense level of competition which makes for very small margins,” he said.

“The demand for platforms is there, the key is to make the business model work and find space to continue to invest in new technology because if we don’t keep developing and investing someone else is going to come from the side.”

For van Tonder it is entirely conceivable that Google or another tech player could come into the space, partly because it is easier for a tech company to set up a fiduciary capability than the other way around also because much of the individual technological parts are out there, they have just yet to be put together.

“At the end of the day with all the players you have at the moment that are offering data integration services such as web-scraping tools, it is entirely possible to put enough client info together so that one could take over significant portions of what platforms actually do and, if you add that to the ability to trade funds through an exchange in a much more technologically advanced way than we can do at the moment, it could very well see a whole disintegration of that chain,” he said.

“So, unless we keep investing to make it difficult for the tech players to expand into the space you will see one coming in and that is a threat we cannot afford to ignore.”

All of this is likely to make the next 10 years a very interesting decade for the global financial services community and, as van Tonder said at the start no one yet has a clear advantage. 

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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