Advisers are consolidating their relationships with platform providers at a time when platform profits are plummeting, recent research shows.
Across all the four major banks, AMP, IOOF, Hub24, Netwealth, OneVue and Praemium, margins on average have compressed from 80 basis points four years ago to 57 basis points today despite average funds under advice across the group increasing by 5.6 per cent per annum, a recent UBS report shows.
In the report, Structural shake-up has only begun, UBS analyst Kieren Chidgey notes he expects the margin slide platform providers are currently enduring to continue.
“We believe platform administration fee margins on contemporary products could fall to 30bps or below over the next five years,” Chidgey states.
Meanwhile, advisers are narrowing the list of technology providers they are partnering with, researcher Investment Trends finds.
The number of platforms used by financial planners has declined considerably over the last ten years, Recep Peker, Investment Trends research director, notes.
Peker bases his views on the findings of the latest Investment Trends Planner Technology Report, drawing on the views of more than 1000 financial advisers.
Back in 2009, planners used 3.5 platforms for new client inflows, on average, but this figure has fallen to just 2.1 in 2019, he says.
“Planners will be evaluating their technology partners, licensee and product set more critically than ever as they seek solutions that best meet the needs both of their clients and their practice,” Peker comments.
“The platform landscape is changing at pace. Post-royal commission, the most cited platform selection driver is now fees, with low overall cost to clients overtaking efficient admin,” Peker says.
Since BT Financial Group came to market with a significantly reduced pricing on its Panorama platform last October, MLC has since cut pricing of its MasterKey offering by almost 50 per cent. AMP’s Horizon announced similar cuts to pricing around the same time.
Investment Trend’s Peker notes platform providers are using pricing cuts to compete for key relationships with advice practices.
“As competition intensifies, it is increasingly important for platforms to strengthen their planner relationships since the primary platform captures over twice the FUA (funds under management) allocated to the secondary platform – 56 per cent vs 25 per cent, on average,” he says.