With the platform sector set to pass $2 trillion by 2020, due to a rapidly growing aging population, knowing the key trends in the market is vital to predicting who survives and who perishes. Krystine Lumanta reports.
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A shake-up of the platform sector is set to divide the winners from the losers in a post-Future of Financial Advice (FoFA) landscape. However, it won’t necessarily be today’s dominant players that will be left standing, as the flexibility, fee transparency and latest technology of newer platform offerings could mean dramatic changes to the current line-up in a rapidly changing market.
In particular, FoFA reforms targeting adviser remuneration will put the spotlight on all platforms paying volume-based rebates. These players will have to commit to a significant reshaping of the way they do business if the reforms are approved.
More money will be pouring into superannuation funds, driven predominantly by a growing number of retirees – who’ll need income to last 30-plus years – and the potential increase in the SGC to 12 per cent.
‘Innovation will continue to evolve, and there will be winners and losers from that’
The 2011 Rainmaker Platform Report says money invested via wraps, master trusts and master funds reached $500 billion in March this year, and is growing at a rate of 20 per cent a year. The sector is expected to pass the $2 trillion mark as early as 2020.
STRATEGIC ADVANTAGE
Andrew Varlamos, chief executive officer of independent platform Powerwrap, says platforms must be looked at as being more than just administration or operational tools for planners.
“Platforms used to be thought of as operational tools, but they’re actually more important in being strategic,” he says.
“To me, that’s the biggest theme. We’ve set up administration services to provide efficiencies to advisers but in fact, it’s recognised in the market that they’re not just operational, they’re strategic.
“This underpins the ACCC decision to block NAB’s proposed acquisition of AXA. That was all about platforms, because they’re not just administrative tools, they’re a means of distribution.”
The recent $14 billion AMP acquisition of AXA is a testament to this.
Steve Burgess, general manager of wealth management at AXA, says AXA has “just merged with AMP and you can see the market has really taken kindly to that because they see a scale player in wealth management that’s supported by Superannuation Guarantee contributions and all the rest of it”.
Whether there is enough room for more entrants to compete against the big, more established players – or whether such a commoditised market will squeeze them out – is a question of both customer and adviser demands, and the new regulations brought about by FoFA.
Justin Delaney, head of insurance and platforms for Macquarie Adviser Services, says there’s an obvious variation in the market.
“There’s been increasing consolidation, but there’s still some very distinct differences between platforms,” he says.
“Platforms are developed to cater to a specific demographic or type of client, in terms of balance…or investable assets, and you’ll see others that end up being broader, for the more simple needs to the complex needs, on a single platform.”
Adam Gale, financial adviser and chief financial officer at Announcer, says there is one main aspect that advisers want out of a platform in the present landscape.
“Transparency. Fees and accessibilities are the biggest things we look at,” he says.
“The pressure is on fees…so there has to be a very good level of transparency in the actual fees in terms of rebates, MERs [management expense ratios], admin fees and all the different fees that can be housed on a platform.
“Most of the [current] platforms are providing transparency, and a lot of them are getting better, so they’re not moving away from where planners want to get to,” Gale says.
“They’re continuing to move in the right direction.”
MARKET CONSOLIDATION AND THE NEW PLAYERS
According to Plan For Life’s latest analysis of wrap, platform and master trusts at December 31, 2010, four groups each hold over $20 billion in platform funds under management, led by National Australia/MLC ($48.5 billion) and Commonwealth/Colonial ($47.7 billion).
Despite such an intimidating environment, there is scope for competition. New platforms are keen to compete as an alternative to the “generic” offerings that have been around for years.
Burgess says there will always be “a kind of innovative fringe that may be driving certain developments in niche areas like SMAs [separately managed accounts] or the SMSF [self-managed super fund] market”.
“As far as I’m concerned, from a mainstream platform manufacturer perspective, we’re introducing those kinds of features and functions as well,” he says.
“The small players are going to struggle to hit the kind of scale that’s necessary to sustain them as a realistic option in the platform market, especially in light of the developments that we’re certainly planning and I know several of our competitors are planning as well.
“But it’s difficult to say that there’s no room for those players.”
Although there appears to be some breathing room left, it’s imperative to stress that it shouldn’t encourage a sudden boom of new platforms.
Michael Clancy, executive general manager of investment platforms at MLC & NAB Wealth, says: “At the same time, the environment needs to encourage consolidation and scale because it’s the only way the industry can produce the kind of efficiency where we can pass benefits onto investors.
