Nearly half of the advisers questioned in a recent survey said they fear an investment platform could fail financially within the next three years.
I strongly suspect they’re right.
You might find it disconcerting that the chief executive of an established player in this space shares such an apocalyptic view.
To be frank, though, it shouldn’t come as an enormous surprise.
The fact of the matter is that almost every commercial sphere reaches a point at which competition becomes manifestly Darwinian.
The platform arena has arrived at that stage.
The same survey asked a sample of 200 advisers whether the market has become “oversupplied”. Some 40 per cent agreed it has.
At the very least, it’s certainly getting decidedly crowded.
We now have a veritable proliferation of platforms.
In many ways, of course, this can be seen in a positive light. Competition improves the breed, as they say.
Ideally, newcomers and incumbents alike constantly compel each other to up their game.
But not every market participant is capable of responding.
Eventually, the laggards are likely to fall by the wayside, which is clearly a worrying prospect for stakeholders of every kind.
Regulation: sorting the wheat from the chaff
Alongside financial strength, numerous pressure points are vital to a platform’s capacity to endure and prosper in today’s environment of churn and change.
Keeping pace with regulation has emerged as one of the most critical.
It’s widely acknowledged that platforms have faced greater regulatory scrutiny over the past year or so.
The recent formation of the Platforms Association was in part a reaction to this.
On the plus side, regulation is traditionally geared towards superior outcomes for investors.
Yet it also tends to impose a hefty administrative burden on financial services providers of every type.
It’s hard to bear that burden in the absence of substantial resources.
It demands considerable reserves of time and expertise – as illustrated, for example, by the ongoing scramble to satisfy the Financial Conduct Authority’s Sustainability Disclosure Requirements.
There has always been a ‘survival of the fittest’ edge to regulation, a principal function of which is to separate the wheat from the chaff.
The harsh reality is that entities that can’t or won’t conform are likely to be driven out.
It could be argued that this gives bigger, more recognised platforms an inherent advantage.
Yet even the largest names nowadays have to pull out all the stops if they want to toe the line.
Technology: casualties at the cutting edge
Predictably, technology has become another key differentiator.
The dire consequences of falling behind the curve in this respect are now becoming disturbingly apparent.
Alarm over the prevalence of suboptimal tech is on the rise.
Published in August, one headline-grabbing report even warned the nexus between platforms, DFMs and MPS could soon collapse.
The problem here is the use of systems and software that are simply no longer fit for purpose.
There’s now too much reliance on outdated processes that were never designed to deal with the complexities and asset volumes regularly witnessed today.
Yet it’s also possible to be too far ahead of the curve.
Tech whose suitability and effectiveness haven’t been tested in the white heat of battle can bring dangers of its own.
This is why platforms that claim to be beyond the cutting edge might usefully be treated with a degree of wariness.
Talking the talk is often a long way removed from walking the walk.
These issues are set to become even more decisive in the years ahead, particularly as the revolution in artificial intelligence continues to unfold.
Against this backdrop, the most durable platforms are likely to be those that combine state-of-the-art approaches with genuine utility.
In search of long-term resilience
As new and growing challenges reshape the world of platforms, I’m repeatedly reminded of Novia co-founder Bill Vasilieff.
Sadly, Bill is no longer with us. He passed away in November 2023, aged 68. But if he were alive today he would surely grasp the significance of where things currently stand.
He would fully appreciate that what we’re seeing now is only natural.
Success inevitably attracts competition, and competition, in turn, inevitably threatens to put some market participants out of business.
Steve Andrews is chief executive of Novia Global
