How important is it to you that the platforms you place client money on are profitable?
Factors like profitability, scale, market share and overall financial strength can be a key way of assessing whether the platforms you recommend for clients are in it for the long haul and have the resources to keep developing.
Assessing financial strength or financial health is a key stage in the Due Diligence module in Analyser and the assessment and analysis data generally.
Within this, profit is an element that is always considered as a factor. And 70% of due diligence exercises have platform profitability as a high importance filter.
So clearly, considering profitability is important. But there is also some nuance as to how much weight profit should be given, and where it fits into the overall picture.
Every advice firm, financial planning practice or paraplanner will be working with a slightly different mix of clients, with different elements that are important to them or perhaps different specialisms they need to cater to.
Selecting a platform that isn’t in profit can of course be a very logical thing to do – so long as you’ve done your homework within the context of that bigger picture, and can justify and set out your rationale for your decision.
There was a time in the bad old days when platform profitability featured so heavily in the industry zeitgeist that advice firms were encouraged to select their platforms purely based on a single measure of profit.
If the regulator had come knocking and asked what due diligence a firm had done, the answer would have been to point to an industry report that showed the platform being used posted a profit in their most recent accounts. Frankly, that wasn’t good enough.
There is a further danger in that approach, because even if a single profit measure was being used as justification, it needs to be based on the correct accounts, which wasn’t always the case with some of the reports that were available at the time.
To us, this is due diligence at the laziest level, and a world away from the approach we adopt.
How it works inside Analyser
Once you’ve set up a new due diligence report, choose the features that are important to you or use our templates to give you a base to work from. You can then see the results and which platforms are the best match for what you’re looking for.
After choosing the platforms you want to take to the next stage based on features, you can assess the platforms from a business point of view, such as advised AUA, market share or whether the platform itself or its parent company is profitable.
You can also the include the profitability of a parent company where there is one.
We carry out our own primary research on platform profitability, scale, inflows, service ratings and AUA.
There is also a scale and profit template which can provide a useful starting point.
Service is something we talk about a lot at the lang cat.
Ratings are scored out of 5 – with 5 being the highest – and are taken from the fieldwork in our most recent State of the Advice Nation report. We use ratings where members of the advice profession have identified their relationship with the platform as either being primary or secondary usage.
You can set a minimum service rating of above 3 or higher if good platform service is something you’re keen to prioritise.
Business analysis results example
Future developments
We plan to enhance the business analysis section further for Analyser users – we’ll keep you posted on what that looks like as soon as it’s ready.
Platform profitability and wider measures of financial strength have their place, but always in a wider context. And if you want to forego profit in favour of other measures that are more important to you, then you are well within your rights to do so. The crucial thing to capture is the evidence and the reasons why.
Want to give it a try?
You can use Analyser to assess platform profitability, financial strength and a whole lot more.
Choose from our Everything plan for full functionality and regular insight from the lang cat, or Not Everything for specific due diligence projects and 14-day access. Sign up here
