MLC Wealth, the advice and wealth management business carved out of National Australia Bank, will make significant cuts to fees on its investment platforms.
The business, led by former Perpetual chief executive Geoff Lloyd, is understood to be preparing either for a sale or an initial public offering. It will announce fee reductions today, which in some cases will cut in half the administration costs for end customers.
The new pricing on the company’s Wrap Series 2 platforms will be made effective on Monday, February 4, following the February 1 scheduled release of the final recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Changes to the MasterKey Super and Pension Fundamentals pricing will be effective from April 1.
While headline numbers in MLC Wealth’s announcement today suggest about 200,000 clients invested via MLC’s platforms will benefit from a reduction in administrative costs, the announcement also represents a shift in the way the major platforms plan to work with dealer groups and licensees in the future as they bring wholesale pricing to consumers.
The announcement by Westpac-owned wealth business BT last July to cut the administrative costs associated with its Panorama platform was a rebuke to the existing pricing arrangements it had struck with licensees in the past.
The new 0.15 per cent a year fees for MLC’s retail Wrap Series 2, for balances between $200,000 and $500,000, appears to be along the same lines as the Panorama pricing.
MLC Wealth will no longer offer volume discounts at the licensee/dealer group level under this new pricing, Sam Wall, the company’s general manager of product and platforms, confirmed to Professional Planner.
“The reality is that there are many pricing structures in the market that don’t provide benefits to all clients,” Wall said. “Our pricing structure is [now] flat, transparent and has no select pricing deals attached to it. We think this is the direction the industry will be heading in the future.”
Lloyd said in a statement: “Today’s announcement is one of the biggest fee reductions ever undertaken by MLC Wealth, and signifies the beginning of a new chapter for the business, as we work to deliver products and services that are more transparent and affordable to our clients.”
Regulators, policymakers and consumers have put the industry’s fees and its conflicts of interest under intense scrutiny following a year of investigations and revelations in 2018, which led to findings and recommendations the Productivity Commission and the royal commission.
The decision by BT and subsequently by MLC Wealth to significantly reduce administration costs also comes at a time when new entrants, including HUB24 and Netwealth, have been experiencing accelerated fund flows while their larger competitors have recently been experiencing outflows from their platforms.
Comparisons are difficult
Finding an ‘apples vs apples’ comparison of platform pricing is nearly impossible because of the different ways platforms charge fees and the different bands of funds under advice the providers use to tier pricing.
The complexity of platform pricing has made it difficult for end investors to ascribe a cost to administration, which has made it difficult for investment managers and advisers to price their offerings independently.
The varying interest rates platforms charge on client cash accounts is one example of how costs are hidden in administration; for instance, BT’s Panorama pays a 0.5 per cent yearly interest rate on its working cash account, while AMP’s MyNorth Choice platform pays above cash rate, 1.57 per cent, on its working cash accounts, recent Chant West research reveals.
In its latest announcement, MLC Wealth noted that it had made the decision to increase the interest paid on its Wrap Cash Accounts last October by up to 0.75 per cent a year and on its Cash Fund accounts by 0.48 per cent a year.
Further pricing changes MLC Wealth announced today included a reduction of admin fees on its retail MasterKey Super and Pension Fundamentals, for balances between $200,000 and $800,000, of up to 0.25 per cent a year, starting in April.
Meanwhile, on its retail Wrap Series 2 platforms, fees for balances above $500,000 will be cut 40 per cent, to 0.03 per cent a year, the company stated. Further, the company said clients with up to four family members would be treated as one group, and annual administration fees would be capped at a maximum of $3600 per superannuation family group and $3000 per investment group.
More to come
The changes to the pricing associated with MLC’s platforms are expected to be a prelude to further announcements in coming months as Lloyd gets closer to outlining his strategy for the future of the business.
Lloyd said he has been working with MLC Wealth’s leadership team to modernise and improve its business for the benefit of clients since he was appointed to the chief executive role in September last year. He added that the pricing changes announced today represented one of those reforms.
‘’Over the next 12 months, we will be implementing a number of initiatives across the business to ensure our clients have access to competitive fees, and our products and services are meeting their changing needs,” he said in a statement.
It is understood that Lloyd will look to float MLC Wealth on the Australian Stock Exchange this year; it is possible this process could also lead to the exploration of alternative options, including a possible sale, although the company has not said this officially.
A potential IPO of MLC Wealth will probably face stiff challenges, given the perceived and real regulatory risk attached to these businesses, not to mention the investor skepticism around profitability in a post-Hayne royal commission world.