Retail investment platforms

An annual benchmarking study into the operating costs of UK retail investment platforms has identified increasing cost efficiencies in the operation of both fund supermarkets and wrap platforms.

The study, by business and financial advisers Grant Thornton UK, suggests that platform operators have redesigned their operating models over the past few years to focus on cost control, but proposes that more can be done to enhance user-experience and transaction processing speeds.

Based on anonymised volumetric data directly supplied by platforms, the annual benchmark reveals that core operating costs of fund supermarkets and wrap platforms currently account for around 25 per cent of their average revenues. Including IT running costs, this rises to 40 per cent across both models. It also identifies a decline of up to 35 per cent in IT and operational outsourcing rate cards over the past decade – further alleviating cost pressures and encouraging continued investment in new technologies.

Kenn Taylor, partner, financial services advisory at Grant Thornton UK, said: “There’s been a lot of speculation in recent years around the demise of platforms and a potential wave of consolidation in the marketplace; but what the study shows is that following significant investment across platforms, the economics of their underlying business models remain sound. Though the arguments for economies through scale now seem somewhat overinflated, platforms still need to control distribution, investment and governance costs, as these can still make a big difference to the prospects of profitability.”

Grant Thornton’s study also identified relatively low levels of automation in trade processing rates. It identifies a disconnect in the marketing claims of many firms’ transaction speeds and the true straight through processing (STP) rates on platforms, with some having automation levels of less than 25 per cent of the core process type.

Taylor said: “High STP rates offer the ‘double-whammy’ benefit of improving customer experience and reducing costs, so given the relative youth of the platform market, it’s perhaps surprising that more processes are not automated. In today’s digital age, many of the older platforms will need to invest heavily to catch up and not only remain cost-competitive, but also to keep customers and advisers engaged with their propositions.”