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All change – how platforms have underpinned the development of the advice profession

AJ Bell’s Billy Mackay takes a look back over the last ten years and the huge changes which have occurred in the adviser platform market

Firstly, congratulations to IFA Magazine on its 100th edition and its ten-year anniversary. In a dynamic market like this, when you look back ten years it feels like we were operating in a very different environment to when the first edition was published.

In a pre-RDR world, commission or rebates weren’t dirty words, ‘restricted’ was never a word you’d apply to financial advice and customers rarely interacted with their pensions and investments.

The implementation of the Retail Distribution Review (RDR) at the end of 2012 heralded a new era for financial advice and investment platforms in the UK. The aim was to create more transparency in the advice and investment industry, raise standards through higher qualifications and ensure customers understood the nature and cost of the services they were receiving.

A new era in advice

One of the most significant changes was that charges had to be ‘unbundled’ so that the cost of the three elements the customers was paying for – advice, platform and investment – was clear and disclosed. Rebates and adviser commission were banned.

Advisers also had to define their business as independent or restricted and ensure they were suitably qualified. This was a catalyst for many of them to revisit their business models and decide where they added the most value and which services they wanted to continue to charge for under either an independent or restricted banner, or both.

A seismic shift for platforms

Back then, the debate was around whether the life company or platform model would emerge as the front runner for new business.

A decade later and that debate has been firmly put to bed. The majority of new pensions and investment business now sits on platforms and the platform market has emerged as an important sector within the industry, with all the greater regulatory focus and capital adequacy requirements that you would expect.

The RDR hastened the transition from platforms being primarily fund supermarkets to full open architecture or ‘wrap’ platforms as they were called back then.

The unbundling of charges and review of adviser business models meant that platforms had to offer additional investment options. As a result, the use of investment trusts has increased, the use of passive options and exchange traded funds (ETFs) has increased, the use of model portfolio services and multi-asset solutions have all increased.

As investment choice and platform functionality has evolved, the appetite from the end-customer to track and interact with their pensions and investment portfolios has also evolved.

Reflecting back on important milestones for our own journey over this period – AJ Bell acquired a small stockbroking business in 2007 which allowed us to continue transforming our platform into an open architecture service. This meant we were well placed to meet the changing demands of the regulatory environment and adviser community.

Many commentators predicted the RDR would lead to the demise of many financial advisers. This of course never fully materialised. In most cases it simply reinforced the professionalism that already existed and led to a renewed focus on financial planning rather than individual product sales and fund picking.

Centralised investment propositions have become the norm and more recently PROD has formalised processes around client segmentation.

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