Advisory firms are advised to carefully consider the potential risks of running their own platforms, despite the allure of increased margins.
- At the PFS Conference 2024, Mark Polson highlighted the limited upside and significant risks associated with advisers acting as platform operators.
- A growing interest is observed among advisory firms for more control, with some already having discretionary permissions.
- Current statistics show 6% of firms already operate as platforms, with 15% considering this move according to a recent report.
- The conversation emphasised the need for firms to weigh additional responsibilities and risks with potential benefits.
At the recent Personal Finance Society conference, Mark Polson advised caution for advisory firms contemplating the transition into platform operators. While the prospect of additional revenue through increased margins might be enticing, Polson emphasised that the associated risks could outweigh these benefits. Firms must thoroughly weigh their ability to manage such responsibilities against the relatively narrow potential for increased profits.
During the discussion, Polson cited data from the State of the Adviser Nation report, noting that although 6% of advisory firms are currently running or exploring their own platforms, 15% are considering it. This trend illustrates a growing interest among firms seeking enhanced control over their operations. However, Polson warned that venturing into platform operations involves substantial risks, which must be carefully evaluated against the benefits of discretionary permissions and potential revenue.
Operating as a platform requires firms to assume co-manufacturer responsibilities, introducing new challenges and risks. These include compliance obligations and the need for robust infrastructure. Such operations demand substantial investment in resources and time, which may not necessarily translate to proportional financial returns. Firms must therefore ensure they have the capacity and willingness to navigate these complexities before proceeding.
The statistics show an increasing interest in operating as a platform, with a notable percentage of firms already holding their discretionary permissions. However, the decision to embark on such a venture must be considered thoroughly, with an acute awareness of the potential hurdles. Firms must assess whether the anticipated control and financial benefits justify the considerable efforts and risks involved.
As advisory businesses explore new avenues for growth, the insights highlighted at the conference serve as a crucial reminder. It’s imperative for these firms to consider the long-term implications of operating their own platforms, especially in light of changing market dynamics and regulatory landscapes.
Firms must critically assess both opportunities and risks before deciding to operate their own platforms, ensuring well-informed choices.
