By Anton Raath, 29 July 2013
But an ever-changing investment and regulatory environment provides platforms with the opportunity to offer clients and their financial advisers so much more. The environment is an extremely competitive one, where new products are quickly copied. The future belongs to those who can fulfil their clients’ needs – quickly and cost-effectively.
Above all else, platforms need to make it easy for clients to invest and interact with them.
The regulatory environment is becoming more intrusive for platforms and intermediaries alike. Currently, we’re facing the upcoming implementation of the first phase of Treating Customers Fairly (TCF) in 2014 and the proposed retirement reform legislation from 2015 onwards. Both of these provide opportunities to further improve the investment choice, and to better ensure that clients only invest in products that meet their needs, as well as to build increased trust in the industry.
TCF will see a move towards greater transparency and accountability in serving clients. Investment platforms are already better placed than many other service providers to meet these requirements. This is because they currently show clients the fees that their financial advisers are earning as well as the fees earned by the platform that supports the adviser. This is to ensure that clients are fully aware of what they are paying for, and why.
To date, a series of discussion papers around retirement reform has been released, and much consultation between government and industry has taken place. Increasing life expectancy worldwide has resulted in the need to save more, and to save for a longer period of time.
In a bid to encourage additional savings over and above retirement fund savings, government plans to introduce tax-friendly discretionary savings vehicles in 2015. These vehicles will not attract capital gains tax or income tax on income and dividends. However, there will be an annual contribution limit of R30 000 and a lifetime limit of R500 000. Platforms have traditionally led the way with products that address the needs of the client and the new regulations could be the catalyst for some innovative solutions.
Product development will, to a large degree, be driven and dictated by legislation and technology. One of the objectives of the retirement reform is to ensure that investors have a sustainable income for life after retirement. This provides further opportunity for platforms to expand the range of retirement income options for clients, including partial or full income guarantees.
In this environment, corporate governance is more important than ever before and clients can be assured that the investment options provided via the platform are sound. Clients’ money is deposited into a trust account or the retirement fund’s account. Units in the collective investment schemes are held on behalf of clients in the name of the nominee company. In addition, separate boards of trustees that include external representation govern all the retirement funds on the platform. In the case of Glacier, all investment linked living annuity investments are invested into a Sanlam life policy that forms part of the Sanlam balance sheet. This means that investors are assured of the backing of the larger group at all times.
Platforms offer tools and solutions which, together with the expertise and advice of a qualified financial adviser, play a valuable role in guiding the clients’ investment strategies.
Firstly, a wide investment choice across different asset classes allows clients to construct a portfolio that will serve their long-term needs, across changing life-stages and risk-profiles. In future, we could even see platforms offering direct access to the full set of financial instruments, including exchange traded funds, index funds and other alternative investments – and allowing investors to switch seamlessly between them.
Secondly, platforms provide access to various tools to help intermediaries in constructing an optimal portfolio.
Thirdly, platforms develop and provide solutions to help clients create and preserve wealth over the long term. Some platforms also offer the opportunity to diversify across other financial solutions by offering fiduciary services (estate planning, wills and trusts), personal cover and business assurance, as well as short-term insurance. Once again, the client benefits from consolidated reporting across all solutions.
Estate planning is especially important to an affluent investor, to ensure that succession planning and tax objectives are achieved.
That more sophisticated investors require service excellence is beyond question. Ease of placing business, problem-solving and on-going, relevant communication are among the top requirements.
The way consumers interact with technology will shape the way platforms evolve in future.
Cloud technology and office integration tools could enable platforms to further enhance their service offerings to intermediaries. This could, for example, eliminate duplication between the offices of the intermediary and the platform by allowing sharing of certain information.
The role of technology will essentially be to simplify the way we do business.
The platform of the future will need to serve a larger and more diverse set of client needs. The primary goal of the emerging affluent market is to grow their wealth and this group has specific product needs when it comes to medical insurance and education, for example. Higher-net worth or more established investors tend to have a higher allocation to shares and property within their portfolios. Making these investments directly available on the platform would meet the needs of the more sophisticated investor.
The platform of the future will also look very different from a resourcing point of view. The distribution structure will constantly evolve to fit the changing needs of the intermediary. IT will serve to simplify and support processes, making it easier to do business with the platform. Technology will be used as an enabler to make it faster and more efficient for clients and advisers to interact.
As the platform becomes less admin-intensive, we’ll see a shift in resource requirements from administrative skills to insight, coupled with analytical ability.
From a structural point of view, we could see consolidation of some of the platforms locally. This is already happening in the U.S. and Australia where a few large platforms lease out their operational and IT capacity to the smaller platforms. Locally, this is still blue-sky thinking but opportunities abound.
The most successful platform of the future will be the one that offers solutions that best meet the needs of the client; offers value for money; facilitates the best advice to clients by ensuring that clients and their advisers have access to online tools and information; and provides good governance on product and investment options.