Hi there TCWU fam, Rich Mayor here filling in for Mr Polson. Sorry about that. Avid fans of the Update will remember that I tend to step in to provide news and insights on platform growth and flows once we have pored over the numbers, and that of late they have been rather bruising findings. Sorry about that too, platform members, as there are probably going to be a few more… including this one.
Last quarter we rather grimly predicted that the comparatively paltry numbers might be the best we see this year, and at the mid-way point the numbers have only cemented this position. The second quarter saw advised net sales plummet to new lows of £2.8bn. I mean, that’s obviously not a small number, but spread across the 21 platforms we have providing data to us, it’s not so much to go around. For a bit of context, a couple of years ago two platforms recorded £2.8bn on their own in the second quarter.
Gross sales have been increasingly harder to come by in platform land as the cost of living bites and interest rates have risen, as well as there still being significant change in the platform market in the form of looming re-platforming projects, rebrands and current and impending regulation.
As you’ll see from the above, gross sales for the first half weren’t terrible. They were better than the first half of the pandemic and in the run up to the Brexit vote, though it’s worth noting that we have a few more platforms contributing to us than we did in 2016.
The striking line in the graph is… um… the line for outflows. Nearly half of platforms recorded their highest outflows this time out, which unsurprisingly means outflows are at their highest rate we’ve seen – about 80p of every quid that went onto platforms in the first half of the year went out in outflows. You have to run fast to stay still at the moment, and without extraordinarily high gross sales that leaves net sales in a bleak position.
The burning question here is ‘where are the outflows coming from?’ swiftly followed by ‘where are they going?’. When we’re looking at wrapper trends (across all channels, including D2C, corporate as well as advised business) we’ve seen the highest quarter for outflows from ISAs and second highest from pensions – only bested by the peak of DB transfer business moving onto platforms in late 2017/2018, which peaked with increased lump sum withdrawals that were afforded by pension freedoms and drawdown functionality.
Platforms we spoke with noted an increase in smaller ad-hoc withdrawals from investments. We’ve also heard of instances where a client might want to withdraw a more sizeable chunk of their investments (if not derailing the overall plan) to pay off a chunk of their mortgage in the face of new rate rises. For those without mortgages, helping out family members with a more significant deposit could also be at play here.
We’ve also seen from things like this, things like this, and also this that indicate annuity sales are firmly back on the agenda, after a long time of being in the shadow of the flexibility afforded by Pensions Freedoms and drawdown, and frankly uncompetitive rates. That’s not to say drawdown is going to disappear, obviously, but taking a bit out of a drawdown arrangement to purchase annuities to help weather the storm we’re likely to be in for a while may be suitable for some clients, while retaining the tax benefits on the bulk of pension in drawdown.
It’s likely to be a sum of all these parts (advisers – please feel free to share your experiences), but the truth we’re staring in the face is that it’s likely to go on for a fair bit longer, as are my bleak updates for platforms. Sorry about that.
Note: M&G’s platform isn’t included in any of the numbers above as its results are still under embargo.
IT’S DANGEROUS TO GO ALONE, TAKE THESE!
Links below and for my video choice – For those that don’t know, I live about as far away from our head office as I can be while remaining a UK citizen. Each year 80,000 people invade my city to watch people play music. The line up’s always a bit mixed (both Prodigy and Dermot O’Leary have shared the bill in the past), but I tend to be able to tick off one act I’d never seen. This year that title goes to Jamiroquai. I hope he has a large hat.