How Can I Assess Technology Concentration Risk Across My Platform Providers?

This article is for informational purposes only and does not constitute financial or legal advice. You should consult with a qualified professional before making any decisions about your choice of platform.

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How Can I Assess Technology Concentration Risk Across My Platform Providers?

You have carefully constructed a panel of wrap platforms, diversifying your recommendations to avoid placing all your clients’ eggs in one basket. But what if, beneath the surface, your supposedly diverse panel is all running on the same engine? This is technology concentration risk, and it is one of the most significant, yet least understood, systemic risks in the UK advisory market today.

The UK platform market is dominated by a small number of large, third-party technology providers. Firms like FNZ, SEI, and Bravura provide the underlying technology for a huge number of platforms that, to the end-user, look like separate and competing businesses. This creates a dangerous illusion of diversity.

When one of these major technology providers has a problem – whether it is a major outage, a cyber-attack, or a regulatory intervention from the FCA – the impact is not felt by one platform. It is felt by every platform that uses their technology. It is a systemic risk that can bring a huge swathe of the market to a standstill.

Why This Is Your Problem

As a financial adviser, you have a duty to act in your clients’ best interests. This includes managing the risks associated with the platforms you recommend. If you have, in good faith, spread your clients across three different platforms, believing you have diversified, but all three are powered by the same underlying technology provider, you have not diversified at all. You have simply created a single point of failure for your entire client bank.

The FCA is acutely aware of this issue. Their recent interventions against major technology providers are a clear sign that they are concerned about the systemic risk posed by this concentration.

A Practical Guide to Assessing Concentration Risk

Assessing technology concentration risk needs to become a core component of your platform due to diligence and your firm’s overall risk management framework. Here is a practical, three-step approach:

Step 1: Map Your Dependencies

You need to look “under the bonnet” of every platform on your panel and identify their underlying technology provider. This information is not always publicly available, so you will need to ask the platforms directly. You should create a simple map:

Platform on Your Panel	Underlying Technology Provider
Platform A	FNZ
Platform B	Bravura
Platform C	FNZ
Platform D	SEI
Platform E	In-house

This simple exercise will immediately reveal your exposure to concentration risk. In this example, you have a significant concentration with FNZ.

Step 2: Quantify Your Exposure

Once you have mapped your dependencies, you need to quantify your exposure. For each underlying technology provider, you should calculate:

• The total value of client assets that are held on platforms using their technology.
• The total number of clients who are on those platforms.
• The percentage of your firm’s revenue that is derived from those platforms.

This will give you a clear, data-driven picture of the potential impact on your business if that technology provider were to fail.

Step 3: Mitigate the Risk

Once you understand your exposure, you can take steps to mitigate it. This could include:

• Diversifying your platform panel: You may need to add a new platform to your panel that uses a different technology provider or has its own proprietary technology.
• Setting exposure limits: You could set internal limits on the percentage of your firm’s assets that can be held with any single underlying technology provider.
• Developing a contingency plan: What is your plan if a major technology provider has a prolonged outage? How will you communicate with clients? Do you have an alternative platform ready to go?

The Bottom Line: Diversity is More Than Skin Deep

True diversification is about more than just having a panel of platforms with different brand names. It is about understanding the underlying infrastructure and ensuring that you are not exposed to a single point of failure.

The FCA has put the market on notice. Technology concentration risk is a real and present danger. As a financial adviser, you have a duty to understand it, to measure it, and to manage it.

Ignoring it is no longer an option. It is a failure of due diligence and a failure to act in your clients’ best interests.

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