The rise and rise of investment platforms (and what they are, and are not)

The term “investment platform” has become so widespread in financial advice circles today that it is sometimes surprising to discover how little the average investor understands what it actually means.

For that matter, some financial advisers, if they were honest, might struggle to explain to a client how a “platform” differs from a “fund supermarket”, “product wrapper” or “insurance wrapper” – not to mention where “model portfolios” and a “centralised investment proposition” might come into all of this. *

Sarah Dunnage, chief executive of the Isle of Man-based Ardan International platform group, is only too aware of this confusion.

Indeed, she argues that more needs to be done to boost investor understanding of platforms, now that they have become an almost routine, yet also key, feature of growing numbers of investors’ wealth portfolios.

WHAT IT SAYS ON THE ARDAN TIN

For Ardan International, the immediate problem of operating in a marketplace in which there are so many very different types of investment entities that are calling themselves “platforms” is trying to establish one’s brand, and what it does and doesn’t do, clearly.

For anyone unfamiliar with Ardan, it positions itself pure and simply as a “transparent, state-of-the-art, independent global wealth platform” used by financial advisers and wealth managers to custody and manage the portfolios of their clients.

Clients seeking to make changes to their holdings must do so through their advisers, as there are no facilities for DIY share-trading.

The Ardan International platform does not promote specific products – such as through the use of “best-buy” lists – but highlights instead its “open architecture” format, its multi-currency capability (11 at last count), and the fact that it currently looks after many clients in some 170 countries around the world.

Liquidity is another selling point Ardan International executives like to stress, by which they mean that their advisers’ clients are unencumbered by the lock-in periods or exit penalties that characterised some (admittedly now-mostly-obsolete, due to regulation-driven transparency) platform types.

A key Ardan International feature, as with most comparable platforms on the market today, is that both advisers and their clients are able to view their portfolios online at any time, and even obtain daily updates, if desired, of the current market value of their holdings.

REGULATION, FEES AND TRANSPARENCY

The emergence of platforms (and the growing use of the ‘P’ word) has coincided with a global shift in regulation leading to greater transparency around the commission model.

Platforms work on a fee-based system – widely recognised as fairer for clients - and are therefore at the forefront of this brave new world of transparency.

It’s now a question of education as the arrival of new regulation hasn’t necessarily brought with it the requisite client understanding.

Financial advisers often bemoan the fact, for example, that many clients coming to them for the first time even now still have a vague idea that advisers should be willing to provide their ‘advice’ and ‘savings products’ to them free of charge, because ‘that’s how it was always done in the past’.

Even after they’ve been told that this type of ‘free’ service was, in fact, actually paid for in the past by often hefty indemnified and hidden commissions, these advisers note, some such clients can still struggle to adjust to the idea of a fee-based service.

Explains Hamzah Shalchi, chief executive of Shalchi and Partners, which makes use of the Ardan International platform on behalf of its clients: “Some clients still sometimes seem to think they’d get a better deal if they paid a commission rather than a fee upfront.”

Shalchi adds that one group of clients does, though, seem to “get it right away: The ones who’ve been stung in the past, for example, by having had to pay a surrender penalty”.

As for their fees, Ardan executives say they do all they can to keep them as low as possible, which means a flat fee of 0.4% per year of the value of the client’s assets.

Additional fees are charged when clients add or make changes to their portfolios.

In addition to the platform fees, investors on the platform will be expected to pay their advisers for their services, and in some cases, pay additional sums to any discretionary fund managers who may happen to be looking after the investments held inside their portfolios.

THE FUTURE

Dunnage said Ardan is always looking at how they can provide a better service for their clients.

Indeed, she says the company is in the process even now of making significant upgrades to its system.

“Why are we doing it? Because we want to offer something better to our client,” she says.

“We’ve got to be at least as good as our competitors if not better if we’re going to continue to compete. We have a large number of advisers using us who are extremely pleased with the experience but we are keen to continue to push and to lead the international platform space.”