Platforms: A £151bn business set to expand

A platform provider has been fined for not keeping clients' cash safe. But what exactly are they? Samantha Downes explains

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The Independent Online

The owner of one of the UK's largest financial platforms was this week fined £3.5m for failing to protect investors' cash.

Integrated Financial, owner of Transact, failed to keep investors' money in separate accounts between 1 December 2001 and 30 June 2010, the City watchdog said.

The Financial Services Authority said Integrated Financial had placed investors' cash at risk. It said: "This meant that money belonging to one client was used to cross-fund other clients and resulted in clients' money being at risk if Integrated Financial became insolvent."

While investors did not lose any money as a result, the fine will be a blow to the thousands of advisers who use platforms to help manage their clients' cash.

When they were introduced in the UK in 2000, platforms were heralded as a financial revolution.

First rolled out in the US, South Africa and Australia, they are online tools which allow investors and their advisers to view and manage all their money in one place.

There are two types of platforms: fund supermarkets which offer access to unit trusts; and wraps, often dubbed open architecture platforms because they allow investors access to not just unit trusts, but share dealing, self-invested personal pensions, even hedge funds and gilts.

Fraser Donaldson, insight analyst at the research company Defaqto, said: "Fund supermarkets are essentially direct to client in that anyone can access them, while most wraps are tools used by adviser on behalf of their clients."

Specialist finance magazine Money Management, which runs an annual platform survey, estimated that £151.1bn worth of assets were managed via a platform at the end of October this year, up from £135bn in 2010.

Changes to the way financial advice will be given are likely to mean more advisers – and therefore investors – will make use of platforms.

Defaqto research shows that 40 per cent of advisers who do not already use a platform plan to use one in the run-up to the introduction of the changes in January 2013.

The difference between one wrap provider and another lies in the types of investments they allow.

A fund supermarket platform, such as that offered by FundsNetwork and Cofunds, allows investors to access the unit trusts of providers who have signed up for the service.

Independent providers such as Transact, Standard Life. Axa's Elevate, Aviva Wrap and Ascentric offer what is known as a full platform or wrap, allowing investors to invest in everything including shares, exchange traded funds and derivative-based investments and even include their pension.

Until recently most of the money invested via a wrap tended to be in unit trusts.

One of the benefits of platforms is the time they save advisers from spending on administration.

One adviser told The Independent: "The most obvious advantage of wraps is that it cuts down on paperwork. Not only can valuations be obtained in seconds, customer transactions take seven hours less per year on average. This is time the investor would be charged for but we can pass back to them."

"Using a wrap also means investors are paying for the advice skills of an adviser rather than their admin abilities."

The adviser said advisers can also avoid expensive client meetings by calling the investor and talking them through their wrap online.

A full wrap can also allow a customer to request capital gains tax calculation or indeed a probate valuation.

"A probate valuation can cost £2,000 to £5,000 if calculated by a solicitor, while a wrap will do this at a click of a button. You simply tell the system to value at a date of death – a real time and money saver."

However platforms have come under criticism for the amount of interest they pay on cash accounts, when compared to the high street. What is more, many providers restrict platform users to just the cash account it offers, rather than allowing them to shop around for a better deal.

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