The platform industry in five years’ time (2026)

The platform industry in five years

The platform industry in five years’ time (2026)

We’ve given some thought to the headwinds facing the UK and how they might affect the platform industry over the next five years.

There has been seismic change over the past five years with significant consequences for both society at large and the UK retail wealth management industry. They include pension freedoms, the Brexit vote, and of course, the Covid-19 pandemic that continues to affect us today.

Since our last forecasts, the UK has managed to negotiate a Brexit deal, although we are still trying to figure out the long-term effects on industries and ultimately consumers (likely bad). Recent Brexit shenanigans could wreak even more economic damage than has been expected. Despite this, the Office of Budget Responsibility (OBR) expects the UK economy to grow more rapidly — by 6% in 2022, then at a rate of 2.1%, 1.3% and 1.6% — no doubt because 2021 was home to a surge in consumer confidence compared to 2020, and industries recovered quicker than expected.


Although Covid-19 is unlikely to disappear, the way out of the pandemic and back to normal life appears to be on the horizon. However, a huge amount of money was pumped into supporting the economy through furlough schemes and business loans. That support must now be paid for — Rishi Sunak’s November budget means that the British public’s tax burden will be at its highest level since the Labour government of the 1950s, reducing the amount of disposable income and affecting people’s ability to save and invest.

But it doesn’t stop there. Brexit, fuel and labour shortages, and supply chain challenges are fuelling inflation, which, according to the Bank of England has now hit 5.4%. The Bank’s Monetary Policy Committee has raised interest rates to 0.25%.

There were already plenty of issues to deal with in 2021 and we can expect 2022 to be a year of higher inflation, no furlough safety net, booster jabs, sustainability challenges, higher taxes and rising interest rates. The rise in interest rates will also be a first for many as we have not seen rates at 1% levels since 2009.  It heralds a new investment era for many fund managers and investors who will be navigating uncharted waters.

Inflation brings challenges. Disposable income is reduced and the ability to save and invest is affected. At the same time, if interest rates start to rise globally as expected (the Bank of England has already raised the base rate once), this too will have an impact on investing since cautious investors will be happier with higher interest on cash and deposit accounts.

Cash is not king

As part of its Consumer Strategy, the regulator has a target of converting at least 20% of savers into investors. Its research shows that over eight million people in the UK have investible assets of more than £10k in cash and that potentially half of them could benefit from investing. This strategy is likely to convert around £16bn to £17bn over the next few years on top of ongoing flows.

This will boost retail wealth flows, but there are other reasons for our punchy forecasts. We (and many private equity firms who are pouring money into this sector), believe that we are on the cusp of a wall of money moving into the retail wealth management sector and platforms will be the primary recipients. This is driven by many factors, but the most significant being an estimated £1trn intergenerational wealth transfer that is expected to change hands between now and 2027. In the next 30 years, £5.5trn will pass between UK generations. The retail wealth management industry is filled with opportunity.

Demand for advice is strong

Demand for advice and investment solutions is as strong as ever and will continue to grow in the medium to long term fuelled by the rapid pace of change, the adoption of new technology and the importance of putting the consumer front and centre.

The pandemic was a black swan event that forced industry change and compressed it into a very short time. Consumers have adapted to remote living and embraced technology across all areas of their lives, and they have no intention of going back to the old way of doing things.

Anachronistic concepts such as separate distribution channels for different types of investments are being swept away because consumers want to access everything through one platform on one mobile device. Consolidation, technology, user experience and multi-channel distribution are coming together in a perfect storm. The industry must adapt.

Consolidation has long been the somewhat obvious prediction for the platform industry. And it’s fair to say that we’re riding a significant wave of consolidation at the moment that was almost entirely created by private equity money. That money is driving consolidation throughout the industry — in software, platforms, fund managers and advice firms too.

However, we’ve been writing about the investment industry for more than 20 years (yes we’re old) and experience has shown us that when consolidation happens at one end of the market, it creates new opportunities elsewhere. The news that Morningstar is to acquire the Praemium platform and that Epiris is flipping Nucleus and James Hay are cases in point.

Compound annual growth rates

Pessimistic scenario

Historical analysis shows that even during difficult periods, industry assets continue to grow at a modest rate. Our pessimistic scenario assumes a forward growth rate of just 10%, putting assets on course for £1.5trn by 2026. In this scenario, economic growth will be slow and sluggish. Higher inflation, greater tax burdens and lingering Covid in the community will hamper the recovery.

The outlook for platforms could be eased by the steady trickle of pension business and the growing acceptance of the need to save and invest. However, higher interest rates and economic uncertainty could keep investors away from investments. Interest rate rises would also put pressure on disposable household income and depress savings levels. Platform activity will be subdued.

Realistic scenario

The realistic scenario assumes a forward growth rate of 18% taking assets to £2.1trn by 2026. The boosters for this are the intergenerational wealth transfer, auto-enrolment, digitally engaged D2C millennials, continued use of drawdown ahead of annuities and generous ISA and pension allowances being taken up. This scenario assumes that the economy continues its strong recovery in 2022 and that there is moderate growth in subsequent years.


Optimistic scenario

Could this be the roaring twenties? In the optimistic scenario, assets will grow at around 24% to reach £2.7trn by 2026. For an optimistic scenario, this growth rate is driven by better-than-expected growth in 2023-2026. This could be from a stronger-than-expected economy post-Brexit, a surge in investors for sustainable solutions, positive sentiment from a general election in 2023 or 2024 and increased benefits from a digital accessible long-term savings sector, and of course significant intergenerational wealth transfer. In this scenario, the UK has moved post-pandemic with economic growth and bullish investor sentiment driving markets.

Channel projections

Channel projections are even more hazardous than industry ones. We expect retail advised business to grow steadily over the next five years predicated on the ongoing demand for advice especially in the pre- and post-retirement phases, boosted by the cushioning effect of new pension business as take up of allowances are optimised.

Overall, we expect the retail advised channel to slightly increase its strong market share of the channel split and reach £1.4trn on a realistic growth trajectory, leaving institutional/corporate channel and D2C to continue growth and reach £265bn and £450bn respectively. The comparative success of auto-enrolment will ensure that workplace pensions will continue to grow at a steady pace, but the channel remains under-represented in Fundscape data.

The D2C channel performed strongly during the pandemic. Sales this year have remained high, as we emerge from the pandemic. Digital take up is fully embedded thanks to lockdown. We can expect the new era of digital adoption to further fuel D2C. It will help mitigate consumer inflation challenges that are likely to create uncertainty and market volatility will inevitably weigh on investor sentiment.

channel projections

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