We see the UK platform market as representing an increasingly important segment of the wealth management market. High growth expectations for assets under administration and increasing corporate activity in the space underpin our interest for this segment.
We have seen a number of investment platforms complete IPOs since the start of the year, with debuts from Integrafin (better known as Transact) and Nucleus, and AJ Bell expected in the coming months; in addition to the well known longstanding consumer offering from Hargreaves Lansdown.
This sector plays an important role on two fronts: helping advisers to address an increasing regulatory/administrative burden and empowering individuals to manage their own wealth – as the responsibility for defined contribution pension scheme moves towards the employee.
Platforms benefit from assets flowing in from existing adviser and customers users, as well as newly established relationships. There are clear benefits from scale which we think will drive corporate activity: costs are predominantly fixed and capacity is not an issue.
There is already more than £600bn of pensions and savings wealth marshalled on investment platforms in the UK. Platforms bring transactional, client reporting and administrative functionality to both the adviser and client, as well providing essential tax wrappers such as ISAs and pension plans.
With strong recurring income characteristics from existing clients complemented by organic/structural growth in the space, valuations are rich by traditional standards with all currently listed players trading north of 20x forward PER, with Hargreaves Lansdown standing ahead of the pack at 29x cal’19 having proved itself over a long period and built a strong foundation.
Overall, we see an evolving space which will be increasingly active in the public markets, with interesting growth characteristics and a service offering in demand from both advisers and individuals.
A run down of the listed players, and the ones to watch:
- Hargreaves Lansdown has long been the best known name in the platform space. With more than £94bn client assets, it has forged a significant presence as being a market leader in the direct to consumer space and has branched out into corporate pensions and adviser functionality.
- Integrafin is one of the largest independent adviser platforms with >£31bn client assets. It listed in January 2018 and saw impressive price performance on debut, peaking in July (+78% vs IPO price). It launched in 2000. Integrafin runs Transact on its proprietary technology, unlike some competitors who outsource the development and management of core software to external service providers.
- Nucleus Financial is the most recent IPO in the wrap platform space. It currently administers £13.7bn of client assets. It is smaller, but is growing quickly, delivering a differentiated adviser-centric proposition, overlaying internally developed modules over a well-established engine (Bravura Sonata). The shares have drifted post IPO, possibly unfairly given its prospects.
- AJ Bell is the next platform provider expected to list later this year. The Manchester-based platform provider has a foothold in both the consumer and adviser markets. It currently administers assets in excess of £42bn.
- James Hay, part of the listed IFG Group business, is currently facing an HMRC investigation which could result in penalties but has seen margin improvement on its £26bn assets delivered through an adviser facing service.
Where are the risks?
- The majority of income comes from fees charged on the value of assets. A falling market would impact earnings.
- The wider industry (advisers, on behalf of their clients) has been paying close attention to the charges they pay to platforms. There is some scope for fee margin pressure. This was echoed in the recent FCA Platform review which focused on transparency, but was not accompanied by material remedies. The market may respond naturally.
- Whilst a number of larger financial services businesses (Aviva, Quilter formerly Old Mutual, Standard Life Aberdeen) offer platform functionality, they are in the midst of an investment phase. Competitive pressures could increase if some present a credible proposition to supplant an independent.