According to Shannon Bernasconi, the existing crop of investment platform providers are compromised by shelf space fees and ripping off their clients by “taking a clip” on cash accounts.

The managing director of startup investment platform WealthO2 holds little grace for the likes of Netwealth, HUB24 and Praemium, or the incumbent providers they’ve successfully carved market share from such as AMP, BT and MLC.

“They’ve already made their money,” she says. “They’ve come through the boom times and done phenomenally well.”

In light of the Hayne royal commission’s eviscerating study on conflicts in advice, however, Bernasconi reckons platform providers need to come under equally tight scrutiny.

“There’s hidden margin in lots of places,” she says, referring to the various ways that platforms make money. “There are different places they can hide them.”

Bernasconi identifies shelf space fees – where a product provider pays to be an investment option – as a highly conflicted, hidden corner of revenue for platforms. At WealthO2, she says, they only make products available if advisers request them.

“It’s by invite only,” she adds. “There are no shelves.”

Bernasconi also believes many platforms unfairly take margin on client cash accounts. She notes that some are paying out 0.5 per cent despite making over 100 basis points on it. “The cash sitting in some of these accounts [is] basically losing money compared to normal bank accounts,” she says.

WealthO2 uses Macquarie’s CMA for cash, Bernasconi says, which pays interest (plus the adviser rebate) of 1.05 per cent.  “We’re not clipping the client’s money,” she says.

On platform fees, Bernasconi says WealthO2 has “ruffled feathers” by only charging 15 basis points. The price itself isn’t unusual – BT Panorama, among others, charge the same. Indeed, comparing fees is problematic; as Professional Planner noted last year, the full fee picture involves balance bands, administration fees, cash account fees and myriad other factors. WealthO2 is likely at the lower end of the total fee scale, but beyond that the waters are murky.

What does stand out, however, is that Bernasconi reckons the entire advice value chain – including platform, investment and advice fees – should cost the client less than 100bps.

“If you look at the economics of the adviser value chain… there’s a gap for the professional model managers and the adviser to make good revenue, but the client should still be paying less than the one per cent,” she says.

‘The unconflicted version’

Bernasconi grew up in South Africa during the apartheid era and says the experience put her on a path to creating a business that takes an ethical approach. She calls WealthO2 the “unconflicted version” of an investment platform.

The company was founded roughly three and a half years ago, and currently has about $1.5 billion of funds under administration. Netwealth, by comparison, had $16 billion under administration and claimed 22 per cent of inflows in 2018 with a 2 per cent market share. The largest of the incumbents, BT, had almost $150 billion across all platforms and a market share over 18 per cent.

Compared to their competitors, WealthO2 is a minnow. However, a third of the company’s FUM was added in the last 6 months, indicating rapid growth. Even more telling is that up until recently the platform didn’t employ a single salesperson. “We reached $1.5 billion purely by word of mouth,” Bernasconi says.

The company has a few other anomalous methods. Instead of charging end-investors to use the platform, WealthO2 charges the adviser, who then recoups the cost from clients. This makes the platform “purely adviser driven”, she says. “Our revenue is based on advisers liking what we’re doing and the way we service them.”

There are 20 staff. Half of them are developers, but none of them work offshore. They tried that in the early days, she admits, but the quality was poor and they ditched the idea.

WealthO2 also runs an APRA regulated superannuation fund called Super Simplifier, which is pitched as a cross between a traditional super fund and an SMSF. Again, conflict avoidance is a theme; the fund eschews packaged investment options, such as balanced or growth, “so it’s the adviser’s models and strategies that get used”.

Unpackaged everything

Bernasconi argues that product packaging is the root of conflict in the industry.

“Product-led advice is what historically has led us to this point of inflection in the advice industry,” she says. “As soon as you productise it opens the door for you to do something bad.”

At WealthO2, she says, they’ve stripped out these incentives.

“We did that consciously so we could provide a service and charge a fee for that service, rather than taking the investors’ assets and making money off [them] as most platforms do today.”

Bernasconi warns that FASEA’s code of ethics puts the onus on advisers to identify where conflicts are in service provision. “It’s the advisers that are ultimately being made responsible for removing fees and making sure that hidden fees are being brought to the surface,” she says.

Yet the managing director doesn’t believe advisers should carry the burden alone.

“It’s not advisers who are to blame,” she says. “It’s the whole value chain, and that includes platform providers.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
2 comments on “Time to come clean: Upstart calls out platform conflicts”
  1. Avatar Jeff Oughton

    Congrats to WO2 and PP on calling another significant example of conflicts amongst platforms – notably some bank owned – and a lack of transparency – where is ASIC?

  2. Avatar Christoph Schnelle

    Very interesting. Will it put pressure on the incumbents?

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