At #langcatlive Divide and Conquer, Mark sat down with Quilter CEO Steven Levin to talk business models, platform personalisation and how to ‘incubate’ future clients.

This is an edited excerpt of Steven’s comments based on their conversation.

There are about 1,400 wealth advisers within Quilter Financial Planning, our advice network. Yet around 70% of our business comes from IFAs. So the IFA part of our business is bigger, and I think it always will be.

When we looked at the advice sector years ago, it was because we felt (and still think) that advice is really important. And so we made an acquisition. Other platforms have followed suit, with many taking stakes in advice businesses. We don’t regard that as a threat to IFAs, and we’ve been doing it now for about 10 years.

Part of that is we all know there is a massive advice gap, and a huge shortage of advisers. Also, we understand the rules of the game. We would never do anything to alienate our IFA clients, or try to take clients away. That would just be commercial suicide. We’ve never done that, and we never will.

I also don’t see those D2C models as a ‘declaration of war’ against advisers.

Those companies with both a D2C business and advised business, again, there have to be some rules of the game. Obviously, if you start to cross those lines, that would be very problematic.

It’s worth pointing out though that a pure platform that only does platform administration with no asset management capabilities is actually a very challenging business to run.

The margins are difficult, and the revenue margin goes down all the time. The platform space is a very competitive market.

Clearly, there will be some advisers who want us to go faster with certain developments, or get better in certain areas. We are continuously trying to do that.

But actually if you look at the journey platforms have been on, the platform market has been a successful industry that has delivered better outcomes at lower cost. That is very difficult to do as a platform.

It’s also very difficult to do as a small platform because the economics just don’t really work. So I think what we’ve built is a more resilient business, and that points to why it might be the case that we’re seeing some of the biggest platforms get bigger.

Platforms, pricing and priorities

[Question from Mark]: “There may be advice firms that challenge whether things have truly improved across the platform sector over time. It’s been suggested that the platform sector may have ‘a new set of clothes’ and added some digital processes, but beyond that not much has changed from 20 years ago.”

Advisers are demanding of the platforms and providers they work with, and rightly so. But having travelled around the world and seen what other markets have done, those countries actually look to the UK platform market as one of the great markets in the world for this type of capability. That is the reality.

Sometimes as platforms we’re asked by advisers to flex and change the platform tech in a way that’s more bespoke to the needs of the firm and their clients.

What I would say to that is platforms have to be able to do things at scale and in a robust and cost-effective way. The alternative approach of doing everything anyone asks for often ends up with more manual processes, more expense and can create a lot of errors. You’ll have very different pain points.

We don’t have one dictated process that says you’ve got to do it this way. There are journeys you can go through in different ways, such as onboarding. I accept though that’s not infinite. If you look at the pricing you’ve got, paying 15 basis points for a platform, it’s natural that won’t come with lots of different bells and whistles. Yet there is huge flexibility out there already, particularly with things like pension withdrawals on platform.

Let me give you an example of how our development process works. When we did our replatforming, we invested heavily in that for many years. Then we brought it to market, first through a soft launch, then a pilot exercise with about 10% of our adviser base, and we tested it.

While we’d had adviser focus groups involved in the process the whole way through, even then, when we took it to market, out in the real world we found advisers were using the platform in ways we hadn’t envisaged. We spent nearly a year tweaking the proposition based on adviser feedback and real world use cases.

We continue to listen to feedback and evolve. But I can’t build a platform that will work for every single adviser’s individual behaviour, with 27,000 advisers in the market and where everyone wants to do things differently. I don’t think that would be realistic, efficient or particularly very sensible.

Opportunities and ‘threats’

[Question from the audience]: “What are your views on new asset types, such as private markets?”

The private markets space is interesting and one that I think will grow. But it is also a challenge because generally speaking, we’re talking about funds that don’t have daily liquidity, that have notice periods for disinvesting and so on. Then you’ve got to figure out how these types of assets fit into advice processes and pension drawdown cycles.

In my past life, I worked in the South African market and we built products like that there. We had private equity investments sitting on platforms, and we funded them with liquidity. If you needed to get out early for a reason, there was a small discount applied.

So there are ways to do it, but there is a question over whether the market is big enough, as it would require quite a significant build. But I would expect over the years ahead that private markets and infrastructure funds will become something that is more appropriate for retail investors.

[Question from the audience]: “Have you got a view on the threat posed by firms such as trading app Robinhood, fintech firm Revolut and cryptocurrency exchange Coinbase?”

When it comes to D2C players, I actually don’t use the word ‘threat’ because I see a market with a massive advice gap. People are saving far too little or, perhaps more accurately, investing far too little. So I see big opportunities there, and I don’t take a ‘this town ain’t big enough for the both of us’ approach. That’s my philosophy.

In September last year we agreed to acquire NuWealth, a fintech business which allows consumers to save, invest and learn more about both.

With that business we are going to create and bring a proposition to IFAs to allow them to serve smaller clients. Those who come to you and say: “I’ve got £30,000/£50,000 to invest” or less even. At the moment we know IFAs can’t take on a client of that size because it isn’t commercially viable. What happens now is those clients then go somewhere else.

But what we’d like to be able to do is say: “Here, we’ve got a solution”, perhaps offered by advisers as part of a guidance service.

That way those clients stay on advisers’ books, and advisers might stay in contact about market updates, tax changes or ISA reminders. And after a few years, that client is actually worth £100,000, and they’ve had promotions and pay increases over that time.

We’re looking to build that model to incubate clients for IFAs. Where clients are introduced by an IFA, they will always be reserved and protected in that way. And advice firms can build a wider proposition. We’ve had a lot of IFAs ask us for things like that.

I’m not as convinced that the Robinhoods from America are coming to change the world here, but there are lots of already D2C providers in the market.

From what we can see in the data, advisers are taking on clients aged about 50 years old on average, when they’re getting ready for retirement. They come to you saying, “I haven’t got enough” and “I should have come to you earlier” and all those challenges we’re aware of.

But the thing is, what did those clients do before seeking advice? They could have put money into cash, bought a property or (hopefully not) they could have put money into crypto. They could have been with one of those D2C providers or platforms.

Let’s consider those in their 40s or thereabouts who aren’t being served by advice today. If you think in ten years’ time that when those clients need advice, they’re going to come to you, that’s a bold assumption.

Because those D2C companies may have come into the advice market and built a compelling advice offering by then.

So that’s some of the stuff we’re thinking about, and that’s why we’re investing in technology like NuWealth to support advisers and to incubate clients for the future. We think that’s massively important, both for us and for you.