Two major reports out this week, from platform consultancies Lang cat and Fundscape, suggest the platform sector has been pummelled by an unprecedented wave of outflows.

Fearful investors have pulled out millions.

According to the Lang cat advised platform net flows plunged 38% to £2.8bn in the second quarter of 2023. A separate report from Fundscape revealed that despite platform assets rising to back over £900bn for the first time since the fourth quarter of 2021, sales for both adviser and direct platforms were hit hard.

Fundscape’s figures showed net sales plummeted to just £5.5bn, making the quarter the second worse since 2010.

There are a number of reasons being suggested for this and I suspect many of them have more than a grain of truth.

The cost of living crisis, as we keep referring to it, has been touted as one main reasons. I am a little sceptical of this. Have many people really pulled money out of their ISA or pension to pay for their groceries?

Some have, I no doubt, and times are tough for many but I am not sure that people with a well-funded ISA are pulling out their cash as fast as they can. Many will, despite the pain, continue to invest.

A bigger issue, I suspect, is loss of confidence in the stock markets. Poor returns over several recent years will have dented confidence in equities and many will simply be fed up with dismal returns, well below record inflation levels. For these people moving their money into cash accounts now paying 5% or 6% will be, in their minds, some defence against rampant inflation. I understand that even though it's a mistake.

Those with big mortgages and rising rents to pay, perhaps towards the younger end of the scale, also have some pain to deal with and I can understand why some would want to make withdrawals. Their 'rainy day' has arrived.

Realistically, it will take some time before we fully know why platform investment sales have been so badly hit and more research will be needed.

So with all this in mind is it curtains for platforms? Far from it. They have become the dominant way to manage investments and that is not going to change. They will recover in due course but may need to cut their cloth accordingly in the meantime. Cost cutting could well be on the agenda and some are already doing this.

We are learning, however, that platform flows are very sensitive to investor sentiment and consumers remain anxious about long term investment in equities.

Investing in equites and funds takes, at times, nerves of steel but there is also strong evidence that a calm and guiding hand from a Financial Planner makes all the difference. Nervous DIY investors are the ones most likely to pull their funds quickly and perhaps regret this in later years. Even so it's clear from the figures that advised investors are not immune from the issues affecting everyone else.

Despite this, at a time of investment ‘stress’ we need some calmness and long-term thinking, not short-term knee-jerk responses. Easier said than done, of course.

Platforms have not hit the buffers just yet but it will take them a while to get back on track.

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Kevin O'Donnell is editor of Financial Planning Today and has worked as a journalist and editor for over four decades.