On Investing

Platforms: A Euro-Vision of Open Architecture

It’s time to admit to one of my guilty pleasures: the Eurovision Song Contest. The early heats are in full swing, building up to the grand finale at the end of May. In tribute to this auspicious pan-European competition, whose geopolitical point scoring, questionable music picks and tacky ensembles oddly enthrall (some of) us every year, I’ve crafted my own European Open Architecture Contest. The three categories are: Most Open Architecture, Biggest European Platform and Platform of the People – the last being entirely subjective but important all the same. Forgive me for being not as funny but just as dry as Terry Wogan or Graham Norton!

While in recent years the UK has consistently disappointed on the Eurovision stage, I’m pleased to award our island nation the coveted Most Open Architecture award. Often we use the investment platform market to gauge the opportunity for fund managers without – or looking beyond – captive distribution channels. The UK platform market is £331bn (€430bn) according to our data at 30th September 2014, taking into account D2C, adviser and institutional platforms and removing double-counting where possible. For example, we have included the all-encompassing assets under administration figure for Cofunds and left out the figure supplied to us by D2C platform Willis Owen, as Cofunds Institutional is the engine behind it.

This market closest in size to the UK is Switzerland with €283bn, followed by Italy at €265bn and then Germany at €207bn – less than half the size of the UK.

Lipper data supports the UK’s victory in this category. The top five fund managers in the UK commanded a 31 per cent share of the retail fund market collectively at the end of 2014, excluding money market funds, fund-of-funds and ETFs. Having almost a third of the market sewn up by a handful of groups does not sound like a particularly ‘open’ situation; however compare this to Switzerland where the top five accounted for 80 per cent of the market, or in Italy where they were 69 per cent.

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he UK open architecture market currently has around 30 platforms, but none of the home-grown providers have made it big on the European stage (yet). At 30thSeptember 2013, UBS Fondcenter was the big (Swiss) cheese, with AUA of €122bn. A year on and Santander/Intesa Sanpaolo-owned Allfunds has overtaken to win the Biggest European Platform award, with €147bn in assets versus Fondcenter’s €144bn. Strictly speaking, a small proportion of this total is not European – Allfunds has some business in Latin America – but as some other cross-border platform titans don’t provide a country or continental split to us, we’d be remiss to punish the platform for their transparent reporting to us.

The great shame of Eurovision is the discrepancy between who scoops up points and who actually provides entertainment value – Finnish heavy metal band Lordi’s 2006 win being the notable exception. In the European platform arena, it’s the large, ‘serious’ institutional platforms that dominate. So to shine the spotlight on a smaller platform with a big personality, I award IFA and D2C platform Nordnet with the Platform of the People title.

With 371,000 end users across the four Nordic markets at the end of September, Nordnet has better penetration than Hargreaves Lansdown with 653,000 clients – impressive considering the UK population is more than twice that of Sweden, Norway, Finland and Denmark combined. Now that the Swedish regulator will be implementing a full commission ban on investment advice, we also anticipate a future boost in D2C business as some investors shun explicit adviser fees.

Yet the really interesting thing about this platform is how it is trying to encourage consumer engagement, which I first wrote about in February 2014. By acquiring and integrating social investing site Shareville, users now have the option to share the breakdown of their portfolio in percentage terms and transactions real-time, and ‘follow’ the activity of others on the platform. In addition, Nordnet recently launched a suite of four white-labelled index funds with zero management fees to attract new users. The platform makes light of this ‘try before you buy’ strategy in its marketing comms.

So there you have it – a clean contest where political point scoring didn’t feature at all.

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