History suggests an industry is likely to become ever more homogeneous as it grows.
In other words, it is likely to become ever more characterised by the same products, processes and strategies.
Competition is a key driver.
Every market is inherently Darwinian, which means the survival of the fittest inevitably becomes a defining factor over the long run. There are bound to be winners and losers as the years pass.
Consolidation also has an enormous part to play.
Larger businesses have always sought to augment their market share and leverage economies of scale by gobbling up their smaller counterparts. The results can be mixed, to put it mildly.
I mention all this because the sphere of investment platforms is now more than far enough into its journey for these undercurrents to be apparent.
And the overwhelming likelihood is that they will become even more manifest in the near future.
This seemed to be one of the major takeaways from a recent survey of advice firms.
According to Scottish Widows’ Investor Confidence Barometer report, most advisers are worried that choice in the world of platforms could be poised to dwindle at a pretty rapid rate.
As the chief executive of an established player in this space, do I share these concerns? The brutally honest answer: not really.
I don’t say that because I have absolutely no fear of competition. And I don’t say it because I’m supremely confident that consolidation is more likely to see our platform do some gobbling up of its own rather than being gobbled up itself.
I say it because I believe it is possible for an industry to appear homogeneous while remaining significantly differentiated beneath the surface. And I say it because I feel that is where the platform arena currently stands.
Fluff versus fundamentals
One of the most pressing challenges for new participants in any industry is to set themselves apart.
The would-be disrupters are extremely unlikely to unseat the incumbents if they leap into the fray with the very same offerings and prices.
For platforms, as we have seen repeatedly over the years, this is where novel features, enhanced functionality and reduced charges enter the reckoning.
What better way to turn advisers’ heads, especially in a crowded marketplace, than to promise innovation, ease of use and value for money?
I ought to make clear at this point that I have nothing against such objectives. I obviously would not argue that the platforms most likely to endure are outdated, unavailing and expensive.
But touting innovation, ease of use and value for money as hugely desirable ideals is not the same as transforming them into tangible realities.
It takes more than a bit of tech wizardry and a bent for marketing-speak to achieve the latter.
And this is where what’s going on beneath the surface starts to count in earnest.
It is when we dig deeper that we begin to realise the platform industry is still a long way from being homogeneous — and that attention-grabbing fluff has serious limits.
We might find, for instance, that some platforms have a surprisingly low number of employees.
We might find they lack experience and expertise.
We might find their reporting tools are crude, their investment universe is constrained and their infrastructure is crumbling.
We might even find they are trading at a loss.
Ultimately, we might find some platforms are able to talk the talk but are not so great at walking the walk.
So here is the big question, not least in an era of more growth, more competition and more consolidation: what genuinely constitutes walking the walk?
I would say it boils down to fully recognising and fulfilling a platform’s fundamental purpose. This might be summarised as follows: to look after clients’ money, protect it, grow it and then give it back.
As an industry, we perhaps too often forget it is as simple as that. Particularly as the market continues to develop, advisers and clients alike may increasingly favour those platforms that do not lose sight of this basic truth.
