The Benefits of Wrap Platforms
Many industry commentators regard Hubwise as a ‘FinTech’ business, but the company is a little bit more than just that – it’s also fully regulated in the UK to hold and control client money, which makes the term ‘RegFinTech’ more applicable to Hubwise’s operations. We caught up with the company’s Founder and CEO, Angus Macdonald, to learn about the benefits of investment platforms and the things that make wrap platforms appealing.
Can you explain wrap platforms to us?
In simple terms, a wrap platform (or investment platform) enables a user with online access to a broad range of tradeable securities and investment wrappers (such as a GIA, ISA or SIPP), combined with the provision of various trade execution, custody and client money safeguarding services. The smarter platforms are also built around an open API model making it simple for a business to share its transactional client data with other systems or platforms, on a one-way or bi-directional basis.
A wrap platform can operate on a B2B (business-to-business) basis, where the wrap platform directly serves (and contracts with) other retail investment businesses, such as Financial Advisers (referred to as IFAs) or Discretionary Fund Managers (DFMs); or the wrap platform can operate on a D2C (direct-to-consumer) basis, where it directly serves (and contracts with) retail investors on an execution-only or self-directed basis; and some wrap platforms operate both D2C and B2B propositions.
Our Hubwise business only operates on a B2B basis, so we never compete with our customers, and whilst we only launched our platform service in the summer of 2017, we are fortunate to have attracted a strong and growing user community of many of the largest Financial Adviser Groups and Discretionary Fund Managers in the UK.
What do you think is the attraction of wrap platforms?
An investment platform should enable your business to focus on its core competence, whether that’s financial planning and advice, or investment management, or delivering a great user experience for your digital investment service. The investment platform should handle everything else ‘behind the curtain’ to ensure your business (a) functions efficiently and can scale at low cost; (b) can quickly adapt in line with strategic business decisions or the evolving market environment; and (c) most critically, remains on the right side of the regulator.
Tell us more about the Hubwise investment platform. What makes it better than other investment platforms?
Several members of my executive team originally worked with me almost 20 years ago to build and run one of the earliest investment platforms available in the UK. That business, originally known as OMX Securities, was hugely successful, growing rapidly to administer around £20billion of client assets. But with the core platform being wholly reliant on a third-party technology solution, and with an operational headcount in the several hundred, I eventually decided to sell the platform business. That business is still running and is now called Platform Securities, owned by the US group FIS.
In simple terms, a wrap platform (or investment platform) enables a user with online access to a broad range of tradeable securities and investment wrappers (such as a GIA, ISA or SIPP), combined with the provision of various trade execution, custody and client money safeguarding services.
I learned one important lesson from that chapter of my career: you need to own and control the core technology. Only then can you build a platform fit-for-purpose, without inefficiencies, compromises and functionality gaps, and when combined with the team’s deep understanding of the securities market structure, creates a real opportunity to do things differently, to see things differently. That’s why I started Hubwise.
We are using our own modern technology to solve the common investment challenges faced across the retail investment market and to deliver investment capabilities which are usually the preserve of institutional asset managers. It’s a process of continuous innovation and capital reinvestment, and it’s entirely under our control.
Why should more investment firms consider using a platform like Hubwise?
It’s about bucking the trend. For many years, most IFA firms have traditionally adopted a multi-platform strategy, often using up to 12 different platforms to service their client book – this was simply because pricing and products were so diverse, and there was no single platform solution that was deemed appropriate.
That is until now – with Hubwise’s competitive and capped pricing, and ‘whole-of-market’ and independent investment proposition, more and more regulated investment businesses are consolidating their multiple platform relationships into a single primary platform (with Hubwise), with small specialised solutions for the very exotic client requirement.
Recent examples of IFA firms consolidating their client books from multiple platforms onto Hubwise include Fidelius with its Advance Platform, Clifton Asset Management with its Viewpoint Platform, The Private Office with its TPO Invest Platform and Frenkel Topping with its LUCI Platform.
All these firms are high-growth investment businesses, each with client books in the £1billion AUA bracket, and looking to further grow both organically and through acquisitions. The consolidation onto a single platform (powered by Hubwise) is pivotal for all these firms in being able to quickly and efficiently scale their businesses to £5billion of AUA and higher.
Technology innovation, agile delivery, a digital-first mindset and online user experience which combines both ease of use and sophistication, are just some of the characteristics valued by each of these customers.
How do you see the role of the platform evolving?
Since the advent of the Retail Distribution Review (RDR) at the end of 2012, the role of a platform has been open for debate.
Vertically integrated platforms recommending investments and product solutions would naturally be distributors – however smaller platforms like Hubwise are merely enablers – we have most of the same funds available but we don’t take a role in the provision of investment advice – we only act to execute the trades, settle the trades, safeguard client money and custody the assets – we ‘stick to our knitting’.
It’s our customers (DFMs and advisers) that make these investment decisions – obviously looking at the fallout from recent events, it has struck us as very odd that some other platforms, especially D2C (execution-only) platforms, can command a healthy discount from Fund Managers which enables them to keep much higher fees. This practice must surely come under regulatory scrutiny soon.
We are a firm believer in activity-based pricing, however, the market has yet to embrace this concept – but it is only a matter of time. We have a fully transparent policy with regard to pricing for the platform service – we charge 15 basis points (bps) to consolidators or ‘platform operators’, while for larger institutions it is 8–12bps.
As we grow, our margins will only increase as we have the most efficient, purpose-built processing engine in the market (by some distance), therefore we can leverage on this and reduce our pricing as we grow, putting further pressure on the rest of the market.
Those platforms that have just floated have no scope to reduce pricing as they have institutional shareholders who expect a return, so to stay competitive, they will need to offer new products, services and enhancements to technology. Those platforms who have just been acquired will not be able to see economies of scale for some time, and will also not be able to offer any improvements to products or tech as they will be resource-constrained and if they are not, will be heading for a regulatory encounter of the first kind.
Most of the current platforms (advised and D2C) utilise third-party technology solutions (Bravura, FNZ, GBST and JHC), as well as third-party custodians or administrators (Pershing, SEI, Genpact). Where one or two major players do have some skin in the game with their own technology, it is so old and bespoke that it only fits their niche business and is not suitable to be rolled out to other market participants.
Some new entrants have recently tried to enter the market and are being bought before they can establish a foothold or develop comparable functionality.
Our AUM-based platform fee is competitive and combined with our monthly wrapper cap, makes us such good value that we are able to be the ‘Platform for Platforms’.