In its latest State of the Platform Nation report, which covers 19 advised platforms, the lang cat finds a clear correlation between platform size and share of new business flows.
The top six players in terms of assets under management (AUM) – Quilter, Abrdn, Transact, AJ Bell, Fidelity and Aviva – commanded 60% of gross flows over the two years to the end of 2023. With an increased share of new business, the gap between the largest platforms and their smaller rivals is growing, making it harder for the rest of the pack to catch up in AUM terms through organic growth.
The report also highlights that while gross flows into ISAs, pensions and bonds saw moderate increases year on year, they also experienced a considerable hike in outflows. ISAs saw the largest increase in withdrawals in 2023, up 43% on 2022, pushing net sales for the year to -£3.49bn, down from £1.51 billion in 2022. Pensions also saw a rise in outflows, taking the net-to-gross ratio – or ‘stickiness rating’ – to 30.3, down from 48.6 in 2022. This is the lowest net-to-gross ratio for pension sales by some margin since the lang cat began tracking this data in 2016 – the average between 2016 and 2022 was 51.8.
Rich Mayor, senior analyst at the lang cat and author of State of the Platform Nation, says: “Our data clearly shows that, in the world of advised platforms, scale correlates to the lion’s share of new business flows and the gap between the biggest platform club and the rest of the pack is growing. Plenty of smaller platforms are successful and make a good profit, but for those wanting to build scale, it’s hard to see how that can be achieved organically when the largest platforms continue to pull in most of the new business out there.
“In terms of individual products on platforms, we’ve said before that 2023 was a record year for outflows. While withdrawals from ISAs pushed net sales for the year into negative territory to the tune of an eyewatering £3.49 billion, they have always been the most liquid product in platform land and the most logical option for investors to access to cover increased costs. More concerning is the hike in outflows from pensions, which increased by 40% year on year. Pensions flows onto platforms have been absolutely essential to historical platform growth due to the historically high net-to-gross ratio, so for the ‘stickiness rating’ to drop down to the low thirties is not inconsequential. If the rating has been the viscosity of honey in the past, it was more akin to water in 2023.
“Looking ahead, we expect elevated outflows across product wrappers to continue in 2024, which will present revenue challenges for platforms. Alongside lower net sales, increased scrutiny of cash is also likely to impact revenue for a fair few platforms, and the trend for platform charges is only going down. As a result, we think more platforms will pivot to other revenue making avenues, with a few more exploring vertical integration to some level.”
