LEVEL UP: GROWTH, PLATFORMS AND YOU WELCOME What you’re about to read is an exploration of how new models are emerging to give high-growth financial planning and advisory firms more control of in general, and platforms in particular. We’ve been commissioned to write this by SEI, who (it may not surprise you to learn) supplies one of these new models.

Now, SEI is not a charity, and it clearly hopes that executives of firms reading this will consider its services in future. That’s between SEI and you. For our part, we set out ground rules with SEI as we produced this document. We don’t accept editorial interference; we don’t allow clients to soften what we have to say, and we don’t allow them to tilt anything to knock rivals. SEI behaved impeccably throughout this project, and what you see here is our view.

For what it’s worth, we have publicly stated on several occasions that we believe some of the most exciting propositions out there – the deep two- way integration between Fusion Wealth and Enable, say, or True Potential’s Wealth Platform– have links into SEI. It works differently to other platforms, and in common with all platforms has areas of strength and weakness.

The lang cat’s house view, then, is that propositions of this type (you will see similar offerings from IFDL, Pershing and others) have great potential to really shake up the platform space for firms who are ready to make the leap. We’re pleased to be able to take these views out for a walk courtesy of SEI. LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 3

A NEW WAY OF WORKING, A NEW WAY OF THINKING

Firms we spoke to as part of our research for this paper are looking at how they can grow their – “If you always do what you’ve whether organically or by acquisition – and develop always done, you will always and in some cases simplify their propositions in order get what you’ve always got” to industrialise their operations, realise economies of scale, and ensure they continue to deliver great customer outcomes for years to come. Easy to say. Hard to do.

As with many famous aphorisms, no-one really agrees who Technology is inevitably at the heart of any business said this. Some reckon it’s Albert Einstein. Others plump improvement process, but until recently that same tech has for Henry Ford or Mark Twain. For our purposes, it doesn’t constrained the ways in which you can operate. Product really matter – what matters is the sentiment. If you want providers – and we include the retail platforms in this – to change an end result, you need to change the way you can deliver a wide range of propositions and services, do things. but they all require you to make a leap of faith and trust them to deliver the service and outcomes required on your We’re willing to bet a crisp £10 note that none of these behalf. For some firms, abdicating control of their own, notable men were thinking about the technological and their client’s destiny is increasingly unpalatable. This underpinnings of wealth management or financial planning is particularly acute if you’re engaged in brand-building for firms when they made this statement. But the fact is a larger – how can you possibly outsource the that for most it’s hugely relevant, and is a necessary if brand experience your clients will interact with most often? sometimes inconvenient consideration when planning your strategy for the years ahead. Tech improvements by themselves don’t do much of anything. New implementations must always go hand And that’s what this paper is about. There is no shortage of in hand with process improvements. Combined, these providers excitedly offering you variations on the same theme. can make your enterprise more efficient, win you more But, as we’ll see, the status quo isn’t working for many firms clients, and reduce your . With the FCA increasingly who have either achieved scale or who have it in their sights. interested in fast-growth firms including consolidators, now is the time to have all the controls in place. The good news is that what was once the preserve of the very largest firms with many billions under advice is Nonetheless, it’s time that enterprise or institutional firms becoming more and more accessible. More control is can enjoy the same level of control over their platform available to you, if you want it and are happy to work for it. proposition that they can over investments. There is no We’ll explain, and explore in the coming pages. reason in this day and age why that shouldn’t happen, and it’s remarkable that it hasn’t happened sooner. Institutional When we speak with advisers there are several common platforms, where you are the platform operator and so characteristics shared by almost all firms. Firstly, you’re can control both the experience and the price, are your busy. Advice is now the product, and the demand (and quickest mechanism to achieving this. need) for your service has never been greater. Secondly, the last 5 years or so have been a bit of a blur. The seismic So let’s explore how you can make this happen, and gain changes brought on by RDR and pension freedoms have more control over your end-to-end client proposition. taken time to embed, but now there appears to be light We’re not saying it’s easy – but it is more possible now at the end of the tunnel – assuming it’s not an onrushing than it’s ever been. MiFID II train. 4 // LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017

IS THIS PAPER RELEVANT FOR YOU?

Many of the issues we’ll explore in this paper are universal – and everyone is always welcome to read the lang cat’s output. However, if you fit into one of the following three categories (and yes, we know you are special and can’t be so easily compartmentalised) then you may find it especially relevant:

VALUE BUILDERS VALUE DRIVERS VALUE MAXIMISERS

We class you as a ‘value builder’ You’re a step further on from the There’s nothing we can tell you if your firm is growing fast. You’re value builders – which isn’t to say about running a big firm – you are probably at or around £500m of you’ve got it all nailed. Your firm is already seasoned in operating in assets under administration (AUA), at or around £1bn of AUA, probably an enterprise environment, with but on track to double that or more as a result of prior acquisitions or all its attendant challenges. The in the next five years. You’re likely historical M&A activity. You’ve most issue for you is how to maximise to be operating in multiple areas, likely got great recurring income the enterprise value of the estate have discretionary permissions, already, but you’re not achieving you’ve already built. At your and on the lookout for firms to the return on capital and economies size – which might be £3-5bn acquire. You’re keen to avoid of scale you expected. As you of assets under management or building in inefficiency as you look to the future – perhaps you more – the should be grow, and above all need to make are a consolidator or considering bending over backwards to supply sure the business is in great shape becoming one – you need to your requirements with bespoke, for the next stage of your growth get your processes, costs and enterprise-level propositions – not trajectory. risks under control to become an the retail experience that a 10- attractive investment case in future. man band enjoys. It’s all about control, margin, and running a tight ship as you consolidate your position and think about future sources of funding, including an IPO.

All of these categories share a drive to scale and grapple with similar things – the need for ownership, risk management, margin capture and control. These are things that simply aren’t available to the retail adviser firm. Let’s look at some of the attendant problems and consider where we might go next. LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 5

THE PROBLEMS FACING ADVISER FIRMS

An increasing number of large or fast-growing firms we speak with feel they are at a tipping point. Time and again we hear how busy they are, especially as a result of pension reform – but this doesn’t mean everything in the garden is rosy. We hear four main areas highlighted consistently in and around the platform or investment administration space; we’ll run through each in turn now. Some of you may only recognise one of these problems, others all of them, but it is rare that we speak to any firm for whom at least one of the following isn’t an itch that needs scratching.

PROBLEM 1 PROBLEM 2

We require a lower cost We need tighter integration platform solution which from our front office to recognises our scale and middle and back, to become our ability to put our own more efficient and reduce proposition together. operational risk.

PROBLEM 3 PROBLEM 4

We need to build underlying We need different services value in our business and for different parts of ensure we are in control of our client book, without the outcomes our clients destroying efficiency or experience. introducing risk.

Let’s get into the detail. 6 // LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017

PROBLEM 1 PROBLEM 2 WE REQUIRE A LOWER COST WE NEED TIGHTER INTEGRATION FROM OUR FRONT PLATFORM SOLUTION WHICH OFFICE TO MIDDLE AND BACK, TO BECOME MORE RECOGNISES OUR SCALE AND EFFICIENT AND REDUCE OPERATIONAL RISK. OUR ABILITY TO PUT OUR OWN PROPOSITION TOGETHER. As you either grapple with scale already achieved, or move towards greater scale, you start to resemble a product provider in your In 2015 we pronounced – in typically restrained own right. That is to say, you need greater and greater control of style – that “platforms are dead”, and this your client and user experience (front office), control functions and problem was a central reason why. Put simply, quality assurance (middle) and operational processes (back). All the platform industry has been engaged in a three need to move in lockstep; something which the retail platform functionality arms race which neither enables sector is simply not set up to do. That’s not its fault – it’s there for efficiency nor serves firms – especially larger firms who have neither the desire nor the requirement for this level firms – well. of hands-on management. But at scale, your client experience is simply moving too fast to accept an in-a-box retail experience; you For example, some (not all) traditional platforms need to keep hold of the levers of control, and also ensure that you have spent considerable sums developing on- can differentiate yourself through creating a genuinely memorable platform planning and reporting tools, yet in client experience. If we might be specific for a moment (and our research for this paper and others the vast mention a non-SEI client; we did say this was unbiased), just look majority of adviser firms use independent tools for at the control St. James’s Place exerts over all facets of its client risk profiling and planning as part of their practice proposition. That’s a £75.3bn assets under management business, management systems. granted, but the principle is the same.

Extra kit isn’t translating to extra value – and One of the other qualifiers to our “platforms are dead” statement vitally, isn’t saving your firm any money on was the continued poor state of integration between most platforms software licences. Yes, you may be able to drive a and adviser back office systems. The practice management system deal in terms of custody and administration costs, is business critical for virtually all adviser firms, and should be the especially with the lifeco-owned platforms, but central record keeping hub for all client and business activities, you are still getting a retail proposition with what however with a few exceptions the level of integration between pretty much translates as bloatware built in. You back office systems and platforms is, to put it politely, basic. It’s wouldn’t accept it in your Windows workstations; remarkable that your administrators are still rekeying data in 2017. you don’t need it in your platform. The exam question here is: what is a platform worth when This lack of integration impacts both front and back office adviser you strip it back to its essentials? functions. The adviser or paraplanner putting together client reports struggles to get the detail required if full transaction are not available, and the administration side of the firm is inefficient without deep transactional links to and from the back office system into the platform. All of this is solvable – but not if you are reliant on a platform which also has to worry about serving the needs of potentially hundreds of smaller firms at the same time. LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 7

PROBLEM 3 PROBLEM 4 WE NEED TO BUILD UNDERLYING WE NEED DIFFERENT SERVICES FOR VALUE IN OUR BUSINESS AND DIFFERENT PARTS OF OUR CLIENT ENSURE WE ARE IN CONTROL OF BOOK, WITHOUT DESTROYING THE OUTCOMES OUR CLIENTS EFFICIENCY OR INTRODUCING RISK. EXPERIENCE. Increasingly, firms need to increase the number Advisory firms who have reached scale are and type of clients they are able to serve. Not all faced with a choice if they want to build value clients, however, want or need full advice. This and create additional revenue streams. They can can be especially problematic if you have grown partner, and vertically integrate with a provider, your client bank through acquisition, and have a or they can build out from their own advice large number of “orphaned” clients you need to proposition themselves. SEI and others enable re-engage with. One tactic is simply to let those the latter approach, and whilst the big advantage clients wither; another is to view them as an is that the adviser firm gains control on the untapped opportunity. direction, implementation and charging of the It is certainly not the case that a full-fat financial full proposition, there are additional roles, with planning service will be right for all clients. associated costs, that the firm will need to take on Whether the alternative is a phone or Skype- in order to adopt this model. There is, however, based service, robo-advice, a direct offering or a win/win available where the firm can generate a hybrid is up to you. But what is certainly true additional revenue and still provide a more cost is that from an operational standpoint – whether effective and compelling service to their clients. you are building value, driving it or maximising This is particularly important where you may it – you can’t afford to create a new proposition be seeking funding or even an IPO in future. that doesn’t mesh well with your existing one. Creating something with genuine distinction in You need a different front office, to use our earlier a where potential clients – and investors language, for sure, but middle and back office – struggle to distinguish one firm from another should share as much DNA as possible. This is completely central. Yes, recognising revenue doesn’t just drive down staff costs, it helps with streams from becoming a platform operator is error management, efficiency, complaints and useful, but what’s really important is creating claims, PI cover and many other things besides. and delivering a consistent and stand-out client It’s the hallmark of a well-run, risk-adverse proposition. business, and exactly what both the regulator and potential future investors are looking for. 8 // LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017

THE CURRENT STATE All this adds risk, stress and complexity: three things The common theme amongst the which most business leaders do their level best to avoid. four problems from the last section is technology. We’ve all heard for years “My idea is that I should just be able to sit that using lots of tech should result in on a beach and still run my business. It market-leading advice propositions, should all just be as simple as possible.” delivered with brutal efficiency and resulting in advisers making so much money they can retire to hollowed-out volcanoes. This doesn’t seem to hold THEME 2 – THE DEVIL IS IN THE DETAIL out in practice. What’s going on? Whether it’s platforms, CRMs or cashflow planning, everything is complex now. This has made life extremely challenging for firms. To take platform due diligence as We wanted to find out more, and see what state adviser an example, most genuine differentiation comes at a technology is actually in. So we contacted a dozen firms, granular level. Few firms – even at the larger end – have from national household names through to medium-sized the time or energy to get into that level of detail, and most regional firms, to find out more about how they felt about outsourced due diligence services struggle to as well. But their technology ‘stack’, from back office systems through that’s where the experience either holds together or falls to platforms and third-party packages such as bulk emailing. apart, and it’s what drives firms crazy. So where they find something they feel they can trust, they stick with it – even What emerged were two really interesting – if maybe if there is much better available elsewhere. unsurprising – themes. We’ll cover these first and then show a couple of schematics for some of the firms we “We use [platform A] because it’s virtually spoke to in terms of how they use technology to power error-free. [Platform B] is almost as good, their businesses. and it’s good with roadmaps and being honest about what’s going on. That’s THEME ONE – FIRMS DON’T FEEL good enough for us.” IN CONTROL

It will come as no great shock that we found most firms approach technology in a tactical rather than strategic way. The same is true of back office systems. One individual That is to say, their use of technology has evolved piecemeal who is an adviser in a household name national firm we over time. Each firm has found something that sort-of works – spoke to mentioned ‘hating three systems simultaneously’ but hardly anyone we spoke to is satisfied overall. as he was forced to log in and out of a primary and Sitting beneath this is a sense that providers plough secondary system, along with trialling a third. Equally, one their own furrow, paying only lip service to adviser network member user of a more integrated suite loved requirements. Of course, if you’re a provider with some of the detail, particularly being able to integrate the hundreds of firms to please, it’s almost impossible to plot CRM and platform more closely. a course that pleases even a majority. But for the larger It was perhaps put best by one administrator, who’d been or fast-growth firms we surveyed, this lack of direction trying to compare the benefits and drawbacks of a range and control was a genuine issue. For example, one firm of systems to work together: was adversely affected by a platform reprice, which was putting costs up for about one third of its clients. The amount wasn’t huge – a few basis points – but it was the principle of being ‘done unto’ which really rankled. LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 9

“I was trying to get together a matrix of features, but it’s not very straightforward because they all do similar things in similar ways. You have to get too granular to show the design flaws, but it’s the granular stuff that breaks the system.”

When you are at scale, you need providers to fit you, not the other way around.

WHAT PRACTICES LOOK LIKE IN PRACTICE

We asked each firm we spoke to what solutions they used for what function. To protect identities – some well known firms have very obvious technology ‘signatures’ – we won’t detail individual responses. Instead, we’ve created a technology schematic for two very different types of firm which may be of interest. The first is for a firm which has, shall we say, embraced variety in all its forms, and the second is much more disciplined.

SCHEMATIC 1: SPAGHETTI FOR DINNER...... FRAGMENTED FIRM

BACK OFFICE ADVICE SYSTEMS

BACK RISK INVESTMENT OFFICE PROFILING RESEARCH

DOC STORE CASHFLOW MODELLING

ADVISER FIRM

CLIENT CLIENT PORTAL PLATFORM 1 REPORTING

PLATFORM 2

BULK MAIL CUSTOMER SURVEY PLATFORM FRONT OFFICE 10 // LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017

A couple of things jump out at us here – first of all, the and tagging system of its other package. Cost, complexity sheer spaghetti-like nature of interplay between different and potential data issues are baked into this model. packages. Look at how many touch the firm – that’s an indication that an administrator is logging in and doing It is by no means the case that usage patterns of this something with each system. They’re not talking to each type are limited to small firms. Indeed, we found endemic other automatically, even if integrations exist. The level of complexity in firms of all sizes. It may be fine for boutique rework just in terms of data entry is huge. practices who enjoy shopping for different packages (this is so often the real rationale behind ‘best of breed’ Secondly, focus in on the back office quadrant. In common strategies – it’s fun!) and only have a couple of hundred with several firms we talked to, this fictional firm uses a wealthy clients. But if you are looking to run a scale, third-party document store. At least three other systems in enterprise-level operation, it’s simply unsustainable – and its ‘stack’ – including its CRM/back office system – also is one of the first things that VC firms will look to sort in have stores available, but this firm likes the searchability businesses they invest in. There may be some mileage in sorting it yourself before it gets sorted for you.

SCHEMATIC 2: KEEP IT SIMPLE, (NOT SO) STUPID...... INTEGRATED FIRM

BACK OFFICE ADVICE SYSTEMS

RISK PROFILING: FINAMETRICA ENABLE CASHFLOW MODELLING: VOYANT INVESTMENT RESEARCH: OUTSOURCED

ADVISER FIRM

CLIENT FUSION REPORTING: WEALTH ENABLE

PLATFORM FRONT OFFICE

Contrast this with our integrated firm. This is based on and would annoy purists. But its ‘ecosystem’ is still much, feedback from a much smaller firm – a Best Practice much simpler. network member (yes, that means it uses SEI underneath). Being disciplined on only using Enable for all back office, Although this firm is too small to run an institutional front office and CRM functions makes life much easier platform strategy, it is set up in pretty much the right way – other CRMs are, of course, available. This firm rejects to allow for high, rapid growth. In this sense, AUA doesn’t the risk profiling baked into Best Practice and prefers matter – this firm’s operational efficiency and risk control is FinaMetrica – this, of course, adds some complication simply far better than our spaghetti-like earlier version. LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 11

THE FUTURE

We asked all the firms what the industry could do better to Others simply wished that they could ‘groove’ their serve them. Some asked for more integration, with one firm in workflow much more. This goes across all areas of adviser particular wishing that adviser-facing tech companies would tech, but particularly in platforms and back offices. This freely integrate in the way that Silicon Valley tech offerings was particularly acute in firms who had already started often do – many proudly proclaim how open they are. acquiring other practices, where the pain of smashing two sets of (often quite randomly evolved) administrative procedures is both real and value destructive. 12 // LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017

REASSEMBLING THE INDUSTRY Nothing wrong with that, but the nature of technological development always, always moves to greater So, the challenge is to empower firms personalisation and greater control. The end-game of this to reassemble the industry in their – is what marketing types call ‘micro-segments’ – where your – own image, and in particular every user of a system has an experience keyed uniquely to find a way to remove the stuff to them. you don’t need and allow you more

control of the stuff that you do. We’re some way off that in financial services, but changes in technology overlaid with some different thinking are starting to allow greater control of process and workflow This isn’t simple. For some, most likely the value builders by users. As we’ll see, this greater command can also from earlier, it’s a whole new way of working. For others, change some commercial dynamics. especially value drivers or maximisers the change will perhaps be less significant, however for all firms the end The traditional relationship between adviser and result should be that you are enabled to move away from product provider is where the most significant change is the take-it-or-leave-it constraints of the traditional platform happening. In this emerging model, the adviser becomes model, and build a proposition that you control. the product provider, and in doing so gains control of exactly how the proposition should work, and the The first wave of platform providers were all about outcomes delivered to the end customer. developing services and solutions that were broad enough to serve wide-ranging adviser business models.

BACK OFFICE ADVICE SYSTEMS

RISK PROFILING

BACK OFFICE CASHFLOW MODELLING

INVESTMENT RESEARCH

ADVISER FIRM /PLATFORM

CLIENT REPORTING

PLATFORM FRONT OFFICE LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 13

However, this model won’t suit all firms. A different way This assessment needs to consider the benefits of of working means exactly that, and firms need to be the potential solution, the impacts of implementing the willing and able to work in this manner. The economics change, the risks and potential conflicts of interests that often mean that firms need to have at least £500m+ of are introduced, and most importantly how it will affect client AUA (this amount is falling as providers learn how your clients and how you ensure the new proposition is to get more efficient in enabling these more bespoke suitable for them. Adopting and using the new platform propositions), but this is the easy part. may present different risks to your firm and clients to those you previously identified. For example, your firm may be Even if your AUA is well above this level, this way of moving from offering one-off, transaction-based advice to working may not be for you. For example, extending into providing an ongoing advice service, and so your current other parts of the value chain may not be part of your risk management procedures may no longer be appropriate. strategy or future direction. It might also be that your current You may also be taking responsibility for new regulated practice management system is not fully embedded within functions such as CF10a for client money oversight. At the the business – often the case where firms have grown via very least, you should have a formal risk register and assign acquisition in particular. Any adviser firm who is thinking control of it to a director of the business. None of this is of adopting this model is likely to be reasonably confident beyond the wit of man, especially for larger firms who are about their existing proposition, and the day-to-day running already structured this way, however for the benefits of the of their business, but this is a significant change and one change to be realised, with no negative client outcomes, that needs to be considered carefully. it’s important the change is assessed and delivered in a structured and disciplined manner. 14 // LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017

THE SEI MODEL Before we get into the analysis, let’s have a look at which firms have worked with SEI to create bespoke propositions:

FIRM AUA (£)

Creative /Fusion Wealth £3.0bn

True Potential £5.3bn

Tilney (incl. Bestinvest) £22.0bn

You’ll notice that all these firms are sizeable. They don’t behave like a 10-man financial planning firm, and nor should they. Even where firms have started smaller – like True Potential, for example – they have had a growth mindset and an end state in mind. For the kind of institutional structure we’re talking about in this paper, that’s absolutely crucial. It allows the platform supplier – SEI in this case – to set its own plans and work with the business towards that goal. It also allows or enables discussions around developing and deploying processes and technology that are relevant for the end state, rather than the current level. Finally, it reassures investors or potential investors that there is a solid business plan and that the firm is in the right place in both a business and regulatory context to move to the next level.

The other thing these firms have in common is that they have detached the front end – the ‘user experience’ – from the capabilities of the back end platform, which in this case is SEI’s Wealth Platform, and that’s what unlocks the ‘ownership’ element we’ve talked about. If you get the opportunity, look at Bestinvest, Tilney’s D2C platform, against True Potential Investor – you’d have no idea that they were powered by the same underlying technology.

DEPLOYING THE SEI MODEL

FIRM FIRM OR SEI SEI

CLIENT CLIENT PORTAL REPORTING FRONT CLIENT OFFICE SUPPORT ADVISER MOBILE APP PORTAL

NEEDS ADVISER WRAPPER ANALYSIS SUPPORT ADMIN CF10a MIDDLE ADMIN INTEGRATIONS OFFICE ADVISER CHARGE SUPPORT RECONCILIATIONS RECONCILIATION

CUSTODY ADMIN CRM CLIENT BACK MONEY TRADING OFFICE SUITABILITY PI ASSET TA/RECS FINANCE SERVICING LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 15

The table shows there’s flexibility in how this model can The SEI model is not a “one size fits all” approach. It work. For example, if we look in the middle ‘firm or SEI’ needs the firm to know what it wants to do and what it column, we can see a whole range of functions, from client wants SEI to do. From there, both parties start to work portals right through to regulatory heavy lifting which you together to draw out the engagement terms and move can choose to have SEI perform, or take responsibility for towards implementation. Firms adopting this model are yourself. It’s quite feasible to have SEI perform all these likely to already have a structured middle office process, functions, and many firms do choose this route. Whatever dealing with client admin and reporting. This is one area you choose, it’s not just a case of selecting a platform to where SEI can provide flexibility so that the system is use and getting on with it: you have much more control. deployed as efficiently as possible for both parties.

WORKING WITH SEI – OPERATIONAL MODEL

As part of the implementation planning, the adviser firm will It’s worth noting that if you’re thinking of going down this need to agree the optimum operational model for working road, you need to make sure your firm is structured and with SEI. The challenge here is to ensure all the roles and resourced in a way that will allow you to work alongside SEI’s responsibilities are clear, and where possible the advisory existing structure. Specifically, you’ll need to move towards firm operating model matches SEI’s. As well as the day-to- having an operations function which goes over and above day support, a governance model needs to be agreed. the typical firm’s administrative capability. Happily, SEI knows what’s needed, and as part of the early discussions with each We’ve borrowed an example model from SEI below, highlighting firm will take you through what good looks like. the different layers of weekly/monthly and quarterly oversight, covering operations, servicing and change management.

Steering Committee (Quarterly) Client • Executive Relationship Lead (CEO/COO) • Alignment of respective firms’ strategies and discuss implications •  Relationship Lead to • Head of Operations • Set and manage the business agenda for the partnership including goals, projects, resources and risks • Other attendees as required • Provide direction and governance for the client-SEI relationship and SEI executive oversight for the provision of SEI services to client • Chief Relationship Officer •  Relationship Director • Head of Operations Services Oversight Committee (Monthly) • Other attendees as required • Manage services delivery quality and timeliness • Resource planning Client • Resolve escalated operational/service issues across teams •  Key attendees • Assess regulatory/compliance position • Other service users • Define, document and prioritise changes, controls and new projects SEI • Relationship Manager/ Client Service Manager Client Operations and Service • Head of Client Service Review Meeting (Weekly) •  Operations Manager • Other attendees as appropriate •  Other operational • Manage operational and specialists/staff service activities SEI Change Project Management • Review platform and operational incidents and actions • Client Service Manager Meetings (As needed) • Review and close operational, • Others attendees as • Project planning and management technical and service queries required • Detailed project plan status review 16 // LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017

ASSESSING THE SEI MODEL To help support assessment we are going to refer back to the four problems we highlighted earlier.

PROBLEM 1 PROBLEM 2 WE REQUIRE A LOWER COST WE NEED TIGHTER INTEGRATION FROM PLATFORM SOLUTION WHICH OUR FRONT OFFICE TO MIDDLE AND BACK, RECOGNISES OUR SCALE AND TO BECOME MORE EFFICIENT AND REDUCE OUR ABILITY TO PUT OUR OWN OPERATIONAL RISK. PROPOSITION TOGETHER. In this model, we need to stop thinking about SEI as a platform. SEI has designed its Wealth Platform offering to let It’s behaving more like a set of services – in this case custody, advisers construct a more cost-effective solution dealing and administration – which you access through a user for clients. In this model, the firm becomes the portal. That portal can be one you develop, one you buy in, or platform operator, and controls the level of client one SEI supplies. Because the fundamental building block is a charging. Depending on the balance of initial and set of services, rather than a retail in-a-box platform, integration ongoing revenue for SEI, asset flows, levels and is part of the core capability set of the whole thing. As we’ve complexity, the platform charge can be significantly said, moving to an SEI-type model requires some work – lower than industry averages. This allows advisers making sure integrations work in the way you want them to is a to either derive some additional margin and keep potential part of that. But you are in control. charges at an industry standard level, or pass the benefit onto clients. In our adviser research, Another way of thinking about this is that in day-to-day work, we found that most firms said they’d either pass your staff will never see the SEI Wealth Platform itself. True savings on, or split them with clients, so that their Potential advisers never see it; they see a portal which has offering was a little more competitive, but there been developed for them. The platform sits behind this, taking was also a little more revenue – important if a shift instructions and passing back data. There is no readily available of model has required initial expenditure on either more efficient way of tightening up integration in the market at additional staff or software development. the present time. LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 17

PROBLEM 3 PROBLEM 4 WE NEED TO BUILD UNDERLYING WE NEED DIFFERENT SERVICES FOR VALUE IN OUR BUSINESS AND DIFFERENT PARTS OF OUR CLIENT ENSURE WE ARE IN CONTROL OF BOOK, WITHOUT DESTROYING THE OUTCOMES OUR CLIENTS EFFICIENCY OR INTRODUCING RISK. EXPERIENCE. Technology is the obvious answer here. Offering This model can provide a win/win, where the firm a client portal that enables the client to access can generate additional revenue and still provide documentation, valuations, and light touch a more cost effective and compelling service transactions (ISA top up etc) is an objective for to their clients. As well as this, the adviser firm many firms, and there are a number of solutions gains control on the direction, implementation available in the market, although it’s worth noting and charging of the full proposition. There are, a number of the traditional retail platforms are however additional roles, with associated costs, lagging behind in this space. that the firm will need to take on in order to adopt For a lot of adviser firms we’ve talked to, the light this model. touch nature of the services they want to offer to The additional roles and responsibilities centre these clients means that to be as cost effective as around the need for the advisory firm to take on possible they need to be fully integrated into the the role of the platform operator. If you’re going platform. down this road, you will need to have functions The SEI Wealth Platform has architecture in place for middle office administration (SEI can to support this and in particular offers very do some of this, but you will still need to ensure comprehensive reporting and business control you have a strong handle on what’s going on), management information (MI) which may come in oversight, adviser support and enhanced FCA useful as life becomes ever more complex. Again, permissions. Costs for creating and running these you are in control over whether to use the portals functions will vary from firm to firm, and as you and screens offered by SEI, or to build or buy in saw earlier there are a number of different ways your own. For an example of how different things the model can be implemented. Existing firms will can look, check out True Potential Investor (TP’s typically charge c.2 to 5bps to cover these costs. direct offering) and Munnypot, the new robo- adviser which is powered by SEI.

18 // LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017

CONCLUSIONS

So there we have it. Let’s have a think about what we’ve covered.

First, we posed the theory that the current way high- To achieve this, of course, takes breaking with years, growth firms use technology in general and platforms in sometimes decades, of operational and business practice. particular still has a long way to evolve. The three-headed challenges of risk management, cost control and opportunity So can this approach, which moves beyond the typical maximisation are as relevant now as ever. Our industry is retail platform relationship, solve the four problems we’ve unrecognisable from the hodge-podge of fifteen or twenty posed throughout the paper? We’ll recap: years ago, but it is far from coherent – yet. PROBLEM 1 Our research showed that even amongst well-organised firms, fragmentation and rekeying are rife. Platform WE REQUIRE A LOWER COST PLATFORM integrations are generally poor, reporting is hard to control, SOLUTION WHICH RECOGNISES OUR and we heard a cri de coeur from several firms that they SCALE AND OUR ABILITY TO PUT OUR OWN wished everything ‘would just work’. PROPOSITION TOGETHER.

The real problem comes, though, when providers try to Whether you achieve cost savings depends on a number construct a one-size-fits-all proposition to serve a wide of factors. But moving beyond retail certainly gives you the range of financial planning and wealth management firms chance to achieve them – and to be recognised as a firm with wildly differing models. If it’s hard to serve two which needs something beyond what’s commonly available masters, imagine serving two hundred. Small wonder, to smaller firms. then, that some larger or fast-growing firms start to push up against the edges of what’s on offer in the retail marketplace. And as margins continue to get squeezed, PROBLEM 2 even as revenues rise, firms can be forgiven for thinking there might be another way. WE NEED TIGHTER INTEGRATION FROM OUR FRONT OFFICE TO MIDDLE AND BACK, BUT IS IT A BETTER WAY? TO BECOME MORE EFFICIENT AND REDUCE OPERATIONAL RISK. As we’ve seen, it is possible for firms at scale to remake this part of the industry in their own image. New ways of A custom platform build allows you to control integrations and developing allow front end adviser and client portals to be build workflows and processes right through the organisation detached from the transactional back ends of systems, – and the customer experience. This gives you the ability – where all the trading and processing takes place. As back if you make the most of it – to ‘run on rails’ with attendant office systems develop open API standards, these front ends benefits in operational cost and risk reduction can exchange information more freely. In short, it’s more doable now than it’s ever been for firms to create something which looks like them, and from which they can derive a little additional margin to cover initial capital expenditure and increased cost bases. LEVEL UP: BUSINESS GROWTH, PLATFORMS AND YOU // March 2017 // 19

PROBLEM 3 commonly available; the best way we know to achieve it is to take control yourself and become the platform operator. WE NEED TO BUILD UNDERLYING VALUE IN We don’t think this is doable in the retail market as it currently stands. OUR BUSINESS AND ENSURE WE ARE IN CONTROL OF THE OUTCOMES OUR CLIENTS SO IS IT FOR YOU? EXPERIENCE. Let’s be clear. The change we’ve talked about in this Simply, once you want to start building value beyond simple paper is significant; this paper only just scratches the recurring adviser fee revenue, you need to take control surface. And it won’t be easily won. But for high-growth of more parts of the proposition; for our purposes in this or larger firms who want to look at something genuinely paper this means moving into the platform operator space. different in future – whether you’re a value builder, a value This control extends to your customers’ experiences, from driver or a value maximiser, we think moving beyond the branding through to journeys and outcomes. vanilla retail platform market will give a great chance for real differentiation and – hopefully – a secure and PROBLEM 4 predictable future. WE NEED DIFFERENT SERVICES FOR In this space, we think it is the providers who have models DIFFERENT PARTS OF OUR CLIENT BOOK, allowing firms to carve up the cake in the different ways we’ve described in this paper, who have the edge. It’s a new WITHOUT DESTROYING EFFICIENCY OR market and an exciting one, and it’s not for everyone. But it is INTRODUCING RISK. absolutely there to be taken if you want it badly enough.

In some senses, this is the holy grail of platforms – And if not? That’s fine too – just remember that if you genuinely channel-neutral, asset-neutral and wrapper- always do what you always did, you’ll always get what you neutral propositions with total control for you at the front always got. and common processes at the back. This remains far from do what you love

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