Consolidation signposts a maturing platform market

A Mere decade ago the Australian platform market was in its infancy. Today it represents a mature market providing little scope for the successful entry of new players.

That is one of the key bottom lines to emerge from the latest Wealth Insights/Assirt Service Level Survey Report published exclusively in this edition of Money Management.

The report reveals a pattern of consolidation within the industry, with three or four platforms dominating financial planners’ preferences and therefore the market over the past five years.

But the real picture of what is happening in the sector emerges from a five-year retrospective of the Service Level Survey (see box on page 16, 14^th June edition).

A pattern of preference has clearly emerged and it is one that the managing director of Wealth Insights, Vanessa McMahon, believes underscores the maturity of the sector and the difficulties likely to be encountered by any player looking to enter the industry.

“Someone with aligned distribution might be capable of forcing an entry into the sector with a new platform, but it would be just too hard for anyone else,” she said.

The importance of the Wealth Insights/Assirt Service Level Survey is that it represents probably the most comprehensive independent assessments of the Australian platforms arena.

It is based on the opinions of 900 financial advisers, who rated both platform providers and fund managers on over 30 different service features regarded as important to advisers. The survey is now in its 15th year.

The fact that the survey outcomes over the past five years have seen the honours shared between just a handful of players tends to reinforce the 2007 findings that while some planners may have access to up to half-a-dozen platforms, most choose to focus on one and use perhaps two others to accommodate the needs of particular clients.

“On balance, the platform market appears to be very stable, with advisers using an average of 3.2 platforms — the same number they were using 12 months ago — making the job of the platform marketer all the harder when trying to gain cut-through in a competitive market,” McMahon said.

What her research also revealed, however, was that planners showed clear preferences for particular platforms and that this was reflected in the fund flows.

She said the data suggested that 75 to 80 per cent of flows were being directed through a primary platform with the remainder being directed through perhaps one or two secondary platforms.

McMahon said it was in these circumstances that platforms needed to ensure they were getting it right and meeting the needs of planners.

“Providing good service, particularly in those areas that are most important to advisers, and providing good value for money are key differentiating factors for advisers when choosing between platforms,” she said.

McMahon even went so far as to suggest that advisers would only look to change platforms if they considered it was justified by factors such as declining service levels.

Looking forward, McMahon said that given the maturity of the platform sector, one of the few things capable of challenging the dominance of the current leaders would be a significant technology breakthrough.

She dismissed the validity of recent research reports suggesting the platform market might ultimately be challenged by the rise of separately managed accounts (SMAs) and individually managed accounts (IMAs).

McMahon said separate research being undertaken by Wealth Insights suggested that SMAs had developed little momentum among Australian advisers.

“SMAs may have taken off in the United States but our research suggests that it is just not happening in Australia,” she said.

McMahon said that of planners surveyed by Wealth Insights, 85 per cent had indicated they did not use SMAs or IMAs and that of that 85 per cent, 90 per cent said they were unlikely to do so over the next six months.

She said the popularity of SMAs and IMAs in the US was probably owed to the difference in markets between the two countries.

“Many Australian advisers would be asking themselves why they would want to do all the work involved in SMAs and IMAs when they could access a platform arrangement within which all the work was done for them,” McMahon said.