The wrap and platform market has experienced considerable upheaval over the last 24 months following the Retail Distribution Review, the move to clean share classes and the price wars of 2014. But will the pressure continue into 2015 and, if not, what can we expect to see? Nicola Brittain reports.

The next 12 months will certainly see further change and opportunity for platforms. They must ensure they are configured to optimise service ahead of pensions liberation in April [see boxout], and larger platforms holding legacy bundled share classes must be able to switch these shares to clean by April 2016, when legacy trail commission will be turned off.
Similarly, the FCA's thematic review on due diligence, to be released in the first quarter of 2015, is likely to see advisers opting for new platforms as they face increased pressure to ensure they are making the right choices for their clients, according to Richard Bradley head of data at Platforum.

Despite these milestones, platform operators are likely to feel less pressure in 2015 than they have over the last two years according to Frazer œDonaldson, insight analyst from Defaqto. He said: "Now that the hurdles of the last two years have been overcome, I believe the big focus in 2015 will be the retention of clients. Platforms will take stock, play to their strengths and try to improve the perception advisers have of their brand."

Sunset Clause
As we move closer to the Sunset Clause of April 2016, platforms holding legacy bundled share classes must work out how they will convert these assets to clean. This is not an insignificant job and is likely to cause some polarisation in the market. The older and larger supermarkets have more operational work to do around legacy share classes than the smaller wrap platforms.
John Everill head of advisory services at supermarket Fidelity Funds Network said that Fidelity will conduct its operational work for the Sunset Clause in Q4 2015. "Stage 1 of our conversion plan was voluntary but there will be a bulk conversion of the remainder in Q4. Clients with bundled assets will need to be contacted and asked for permission to convert them and all this work must be captured on a register. It is a big job." he said.
That bigger platforms will be focused on the last tranche of unbundling may result in a drop in service leading to financial planners moving their clients from larger to smaller platforms, according to David Tiller head of platform propositions from Standard Life. He said: "We may see the creation of winners and losers in 2015 with flows of business moving from bigger to smaller platforms as a result of this legacy issue. Larger platforms with legacy books may begin losing a lot of business through the back door."

Consolidation
It is widely believed that the platform market is overcrowded and likely to consolidate, but will 2015 be the year for it? Probably not, according to most experts.
A consolidating market normally sees larger players acquiring smaller ones, but the likely fund flows from bigger to smaller platforms may have a levelling effect and prevent this type of consolidation in the short term, according to Standard Life's Mr Tiller.

Another obvious problem with platform mergers is the difficulty of integrating different underlying technologies. But there are two trends that might help resolve this issue. First the platform technology market is increasingly consolidated with just a few providers in the game (Bravura, SEI, FNZ and GBST). And second there is a growing trend towards outsourcing, with recent platform launches from Aegon, Aviva, Elevate, Novia and Zurich all built on non-proprietary technology. Both these trends make platform consolidation more viable in the medium term. Similarly, outsourcing of underlying technology will continue throughout 2015, according to Platforum's Mr Bradley.

Vertically integrated firms
Although the gap between the large and small platforms may be narrowing there is another divide emerging and this is between platforms adopting a vertically integrated model and those operating standalone. Many believe this divide will continue to widen into 2015.
On the vertically integrated side, Old Mutual has acquired advisory network Intrinsic and investment manager Quilter Cheviot, it has also re-branded the Skandia platform and has its own range of single and multi-strategy funds. Similarly, Axa has Architas and Standard Life has the MyFolio managed fund range. Platforum's Mr Bradley said that these alignments will be of commercial benefit to the companies: "The scale these alliances afford means that vertically integrated platforms will be able to negotiate discounts from third parties. This will help them maintain margins."
David Ferguson CEO of Nucleus argued that non-integrated firms (like Nucleus) have different priorities from those of integrated firms. "Vertically integrated companies will arguably be more product led, while others, like Nucleus, are more focused on their relationship with the financial planning community. As such we will increasingly focus on facilitating programmes for financial planners in a bid to further strengthen that relationship."

What are the individual platforms doing in 2015?
The Novia wrap platform recently broke even with £3bn on the platform and chief executive Bill Vasilieff said the company is looking to maintain this position into 2015 and keep expenses low. The company uses GBST software and receives third party upgrades twice a year, it therefore has comparatively low operating costs: Mr Vasilieff said: "We use technology as much as we can, and put as much as possible on line. Having reached break even, we have a tight grip on expenses."

Standard Life's Mr Tiller said the company is looking to take advantange of a movement of assets to the company (from the supermarkets) as a result of supermarkets focusing on the Sunset Clause.
Standard Life is also investing in the enhanced provision of CIP services to advisers as well as enhancements to an investment toolkit for those with their own discretionary permissions. The company will issue releases for both in the first half of 2015.
The company will also launch tax planning software aimed at the pensions market in May. This will help those clients with most assets configure a suitable multi-tax wrapper drawdown solution, ensuring they take the right amount of income from each wrapper for tax purposes.

AXA Wealth has grown from £4bn AUM to £9bn in two and a half years, and by the end of 2014, revenue and income from basis points will be higher than expenses. David Thompson managing director of business development and proposition at AXA Wealth says 2015 will see the company focus on maintaining its position and ensuring the platform is as efficient, automated and scalable as possible.
Axa Wealth will streamline auto payments in 2015 and continue to populate its recently launched help centre for advisers and paraplanners.
The company will also aim to offer higher levels of service in 2015 with focus on quality of staff, and increased automation.
Like many of its competitors, Axa intends to invest in back office integration, with a focus on a two-way link with Distribution Technologies Limited and IRESS.

Nucleus's Mr Ferguson also said that increased integration will be a priority for his company. He added: "There are approximately 85 different systems used by advisers in the back office around cash flow, regulatory returns etc. In 2015, we will prioritise integration with them on the basis of use."
The company recently launched an educational resource promoting best practice for financial planners as well as a recruitment partnership. It aims to grow and pull these services together throughout the next year.

Other industry changes?
Industry commentators have made several other predictions for the platform market in 2015. Novia's Mr Vasilieff argued that an annuity provider might launch its own platform. He said: "Retirement provider Partnership recently reported that its annuity sales were down 73% year on year as a result of pensions changes [see boxout]. One possible outcome here is that an annuity provider will build their own platform to try to recoup lost business."

David Smith head of marketing and due diligence for Platform People thinks the market may begin to see peer to peer lending on platforms in 2015. He said: "Just last week we had the first discussion about ISA peer to peer lending, Platforms would be a good forum to enable this. This service would need to be facilitated by a financial planner as lenders would need advice. Although it is a reasonably risky endeavour it is a potentially workable one."

Nucleus's Mr Ferguson said he expects to see an increased and more sophisticated approach to cash holdings by platforms in 2015, but adds that this would be subject to client money rules and the regulatory framework.

Finally, it is possible that 2015 could see an increase in fixed as opposed to percentage pricing of services along the lines of the Alliance Trust model, according to Platform People's Mr Smith. He added: "Platforms managing high value portfolios could see a considerable drop in income if they are forced to adopt this as opposed to percentage charging."

KEYPOINTS

1 - "The FCA's thematic review on due diligence, due in the first quarter of 2015, is likely to result in a high number of advisers changing platforms," according to Platforum's Mr Bradley.

2 - "We may see an annuity provider build their own platform to try to recoup lost business as a result of pension liberation in April 2015," said Novia's Mr Vasilieff.

3 - "I believe the big focus in 2015 will be the retention of clients. Platforms will take stock, play to their strengths and try to improve the perception advisers have of their brand." said Defaqto's Mr Donaldson.