An expected commoditisation of platforms will force providers to get innovative in the low end of the marketplace, according to Jonathan Anderson, general manager sales and marketing at Equity Super.
As the Future of Financial Advice (FoFA) reforms strip out rebates and trails, Anderson says “there’s going to be a fair degree of commoditisation with platforms [that] may not affect some of the bigger institutions [but] a fair few independents out there who are not so much aligned”.
“I think when you get commoditisation in the market, you start to get some innovation,” he says.
“There’s a chap called [Clayton M] Christensen who wrote a book called The Innovator’s Dilemma and it’s really quite poignant…applying to now what’s happening with FoFA and the impact of platforms.”
The book demonstrates how some of today’s well-known brands became successful by cutting into the low end of the marketplace and then evolved to ultimately displace their high-end competition.
Anderson says the changes in technology provide an opportunity for platforms to come out with innovative pricing post-FoFA.
“If you’re sitting there as one of the big platforms, then obviously you’ve got a more diverse range of customers, from the low end of the market up to high net worth individuals,” he says.
“And if you’re charging a percentage of assets, then the people most at risk for you are the people who are paying the most because they’ve got the most amount of money but not receiving the service for it.
“So if somebody comes out with a different pricing structure in the platform market, I can see a transition across.”
Anderson uses the airline analogy to illustrate the parallel imminent in the platforms market.
“Qantas airlines is a full service, they’re all bells and whistles. Somebody comes out, Virgin or Tiger airways, with a low-cost model,” he says.
“[The] higher service with the bells and whistles at a higher price, can only do one of two things: he can either flee that end of the market that Virgin and Tiger is looking at and then add more value to what he’s already doing to justify the cost of the pricing, or they can come out with a low-end model to try to take them on so that they don’t lose market share. Hence Jetstar.
“That’s going to happen in the platform market. I think you’re going to come up with some low-cost adviser platforms, which is going to give an opportunity to advisers to restructure the way they charge – fee for service.
“I think it’ll be very difficult for some of the product providers who are on a percentage of asset-based type pricing to compete.”
Anderson says consideration also needs to be taken into additional platform functionality and keep in mind their clients’ true needs.
“At the end of the day, you can only pile so much functionality into a product until you get to a point where somebody says, ‘I don’t need that all that function, I only need 50 per cent so why am I paying for all these bells and whistles when I don’t want them?’”
Equity Trustees is running the administration for the recently launched flat fee offer, simpleWRAP.
