MoneyMarketing: Are advisors justified in using white-label platforms?
Platform software allows financial advisors, and in some cases, the clients themselves, to manage their investment portfolios. In recent years, many advisors have focused on incorporating platforms into their practice. James Hay’s acquisition of Nucleus earlier this year was one example of how platforms are becoming increasingly relevant in the wealth management industry.
In most cases, advisory services have run their own platforms and offered them to their clients. Recently, however, advisors, for one reason or another, have been using technology from other firms and branding it as their own. It was widely expected that the FCA would frown on this sort of white-labeling, but it seems the watchdog has no intentions of intervening in this practice anytime soon.
The FCA is already aware that most advisors don’t clarify how these platforms benefit their clients or add value to the already existing platforms. Concerns have also been raised over why advisors pass on platform costs to their clients when it’s actually the advisors who benefit from the white-label platforms. In MoneyMarketing’s recently published article on advisor-owned platforms, Justin Cash explains three main reasons why advisors prefer to white-label the platforms they use.
More control over customer experience
Advisors claim that white-labeling platforms give them control over customer experience. The problem with this justification is that this control is limited to the cosmetic and branding changes to the platform. It is debatable whether these changes offer any value to clients because they do not change or improve the fundamental services clients are paying for. It is also impossible for clients to change the platform core. They are restricted to whatever technology the company integrates with the platform.
Less reliance on external providers
Advisors previously engaged multiple vendors to build platforms, creating several dependencies. Even large firms can’t always create and maintain their own platform from scratch. Using white-labeled platforms gives advisors a middle-ground where they don’t have to create their own product and only rely on one external vendor.
The third justification that advisors often give has to do with their finances. By using low-cost solutions from other firms, advisors lower their own cost of doing business and the price for their clients.
No matter how much the industry focuses on the benefits of these platforms, it is clear the FCA has a lot to say in this regard. It doesn’t look favorably at advisors using outsourced software and passing it onto their clients for a fee. It remains to be seen how effectively the FCA can stop or improve this practice in the future.