Financial planners are increasingly turning away from large-scale centralised investment platforms in favour of more flexible, cheaper direct channels, according to the head of Bell Direct.
“I think as a general trend, and not just in financial services, the world of clients and intermediaries are moving to business models and service models that are open rather than closed architecture,” says Arnie Selvarajah, chief executive officer, Bell Direct, which provides an online share trading platform.
“The traditional platform, in my mind, is a closed model,” Selvarajah says. He compares the institutionally-owned platform space to the old Henry Ford model of manufacturing, where consumers were offered a Ford motor vehicle in any colour they wanted, as long as it was black.
Three trends
“It’s very difficult for an adviser to apply thinking about how to grow or run his or her business if the options aren’t enclosed in that platform,” Selvarajah says.
A second trend he observes is around the level of client knowledge and engagement. This means advisers need to provide a higher level of access to clients that are demanding greater access to monitoring and actively managing their own portfolios.
“Traditionally, it’s been very difficult for platforms to give that transparency. Financial advisers now have to consider how to give clients access to systems enabling them to review and monitor their assets.”
Thirdly, he sees a hybrid model of adviser and client relationships emerging, where advisers are expected to take a lighter touch approach to clients that want to run more of the investment process themselves.
“In some instances, they’re allowing clients to be semi-self directed, and maintaining relationships in the back end by providing the administration, sometimes the tax advice, and that’s hybrid approach we’re seeing a bit more of,” Selvarajah says.
Rick Klink, managing director of Open Markets, a trade, settle and clearing stock broking firm, sees the same demand. The company recently launched its Multi-Asset Trading Hub, which is not aligned to a bank or any other platform.
He says that particularly for advisers servicing self managed super (SMSF) clients, this enables advisers to trade equities and SMSF funds via the same account.
“We can open up a cash account, and use the same cash for equity trading and managed funds, then feed that directly through to a provider like CLASS Super.
“It’s a better deal for the end client, in terms of cost, empowering the adviser and unshackling the product from platforms, getting rid of some administration costs,” Klink says.
Dealer groups and independents
It’s not only the non-aligned and independent advisers demanding greater flexibility in accessing these systems, but also some from financial institutions.
While conceding non-aligned and independent groups comprise most of their planner market, Selvarajah says “we are now getting a lot more inquiries from dealer groups, who are under an institutional license, including CBA and BT Financial Group”.
He attributes this largely to the access they provide to stocks via ASX mFunds, which are currently not available to advisers within the institutional space, “that that many only be for a short period of time”.
Klink says their demand has so far come exclusively form the independent and non-aligned advisers.
“In the post-Future of Financial Advice world, potentially the move to independence where they can look at their own approved product lists, we’re finding a lot of interest from the independents who can have some of these offshore funds and other things not on their current platform,” he says.
“This uncoupling of platform and product will be quite interesting with the traction building in the independent side. I hope it will cause a broader rethink.”
Major changes ahead?
Selvarajah suggests this could be part of a broader shift in the wealth management space. “I don’t know how real this is, but I’m getting a feel that there are a lot of dealer groups looking to exit their institutional relationships and become independent.”
However, he doesn’t believe banks’ dominance of the investment platform space will end any time soon.
“I can’t underestimate the ability for the banks to respond, and to do so in a big way. But I think there is a certain changing of the dynamics within the wealth industry in general,” Selvarajah says.
“But businesses like ours have a different cost profile than the incumbent banks. Our ability to provide more nimble, interesting service models at more efficient pricing will last for a long period of time.”
