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Daryll Welsh, Head of Product, Investec IMS

Re-platforming can be expensive and advisors should be asking if the platform has the necessary scale and backing to achieve the desired outcome

Recent headlines from the UK highlighted the enormous sums of money being spent by UK investment platforms in upgrading their technology. According to a recent article, Old Mutual Wealth (OM) has spent in excess of GBP300m on upgrading the technology (often referred to as re-platforming) that drives their platform. By the time the upgrade is complete, this number is expected to come in at around GBP450m. As the table below shows OM are not alone in soaring investment platform costs. Given these exorbitant numbers advisors and their clients could be forgiven for thinking that platforms are evolving into technology companies.

How the costs stack up1 RE-PLATFORMING COST (GBP M) PLATFORM ASSETS (GBP BN)
Ascentric 5.74 10.10
Alliance Savings Trust 7.43 8.50
Aviva 35.00 8.20
Funds Network 250.00 60.17
Old Mutual Wealth platform 450.00 40.00*
Cofunds 80.00 76.90
TOTAL 828.17 203.87

 

While the spend in South Africa is nowhere near that of the UK, many South African investment platforms are facing technology challenges that will require, by South African standards, a fairly large cheque to be written. There are a number of factors driving the increased technology spend.

One of these is the increased focus on the user experience as clients and advisors become more digitally focussed in their everyday life. Think about banking: when last did you visit a bank branch to transfer money from one account to another? Why should your experience with your investments be any different? Unfortunately, investment platforms have been a bit behind the curve in making it simple and convenient to use online functionality as the norm and are now being forced to play catch-up to deliver a world-class digital experience. This comes at a cost though, as systems and long-run business processors need to be reconfigured.

A second and related factor is the increasing demand for the availability of different investment types on investment platforms, as advisors look to consolidate client’s investments onto a single platform. With this comes complexity and the related systems build cost.

So what, you may ask. If platforms are spending on tech then it’s good for me as an advisor and for my clients. That may be so, but there are a number of important questions advisors should be asking, concerning their chosen platform’s technology strategy. First of all, what is the likely impact on the advisors and their clients, and are advisors likely to be inconvenienced or require changes to their existing business practice? Secondly, does the chosen platform have the required resources to pull off technology rebuild? And finally, who is funding it, as we’ve seen in the UK examples, re-platforming can be expensive and advisors should be asking if the platform has the necessary scale and backing to achieve the desired outcome.

Investment platforms face a conundrum in that for many of them, this requirement to spend massively on their systems comes at a time when they are not making money. They also need to invest to operate more efficiently to be financially sustainable. Financial advisors should consider the financial strength and sustainability as part of a due diligence process when considering which platform to use.

Ultimately, with the way that the world is moving, platforms that don’t have a clear technology strategy and the ability to achieve it may well end up like the bricks and mortar banks of yesteryear.

 

Important information

*Source Old Mutual - Source: Finalytiq

1Source: Marriner, 2016 https://www.moneymarketing.co.uk/roof-driving-soaring-replatforming-costs/

The information contained in this viewpoint is intended primarily for journalists and should not be relied upon by private investors or any other persons to make financial decisions. All of the views expressed about the markets, securities or companies in this press comment accurately reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. Telephone calls may be recorded for training and quality assurance purposes. Investec Asset Management and Investec Investment Management Services are authorised financial services providers.

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