SPECIAL REPORT: Why more planners are going for brokers

Selvarajah describes the move towards direct equity investment as a “quantum shift” and says that on top of a general dissatisfaction with managed fund performance post-GFC, investors are tired of seeing any positive returns whittled away by fees.

He says planners are transition- ing from a commercial model based on fees and trail commissions to a fee-for-service model, and direct equities trading outside a wrap al- lows the planner to make a variable margin on each trade.

“There’s new consumer resentment towards high fees buried in managed funds, and in fact any lack of transparency on commissions or payments,” Selvarajah says. “With a flat fee of $20 per trade on our service, the planner can decide a specific mark-up for each client, or even each trade if they want to.”The reality is there’s an arms race going on at the moment in online broking. It’s all about technology; who will get it out first, who will offer it cheaper.”

Steel says Core Equity Services has a highly competitive rate card, which calculates a fee based on the bundle of services a planner is us- ing, rather than a flat fee-per-trade pricing structure. He adds that in the current environment, as well as wanting to manage costs, advisers want good integration of information to facilitate performance and tax reporting, leaving them less dependent on wraps.Selvarajah agrees, and says Bell Direct is also working on data feeds for all major planning software options to reduce the workload for planners in consolidating information.

Within the world of investment platforms, listed investments are also attracting attention. Macquarie’s head of insurance and platform, Justin Delaney, says he’s seeing increasing demand and increased awareness from planners for direct equities via the Macquarie Wrap. Around 40 per cent of Macquarie Wrap’s holdings are direct equities – around double that of its competitors – with the platform currently settling around 35,000 trades a month.

Delaney points out that the liquidity of listed investments is also driving their increased popularity after many managed funds were frozen post-GFC.

“The real question is, is the platform the hub [of an adviser’s business model] or is the planning software the hub?”

“Investors want to know they can easily access their money, if they want to, when they want to,” he says.

Although Macquarie does operate a wholesale online broker arm offering, Delaney says it would be “premature” to talk about specifically targeting the online segment at this point. He believes a wrap platform is not in competition with an online broker in any case, as he says the value proposition is completely different.

“The wrap offers a full custodial service and so it’s a strong efficiency choice. The benefit of the wrap comes with settlement and planner access to overall information. We contain all the cost-based, income and trading information in one place, reconcile it and audit it,” Delaney says.

“Even though interfacing can work, with any sort of feed of information there’s always the chance of missing pieces and at the end of the day, someone still has to perform the reconciliation.

“Our research shows a planner can manage 120 clients within the wrap compared to 70 without it, which is a 70 per cent increase in efficiency via the wrap. The wrap enables the planner the time to provide advice to their clients.

“It’s a case of horses for courses. If a planner is able to get a client a good deal with another option, go for it. But it doesn’t take long for the value of the wrap to become clear, particularly with any sort of volume or complexity – the administration has got to be done somewhere.”

But Steve James, head of adviser trading solutions at Core Equity Services, says although the wrap is “a bigger universe”, many clients simply don;t want their shares held in the name of the custodian.

“In today’s environment, a lot of investors want to see their shares held in their own name. And with more and more clients pushing for transparency, the wrap holding fee can be a barrier too,” James says.