Have platforms reached their use-by date?

Many advisers feel it’s time the investment train pulled away from the platform, but what sort of ride are they in for? Benjamin Levy reports.

Planners are demanding more and more from their platforms these days.

They want tools to deal with regulatory changes like fee disclosure and opt-in technology, access to every investment product no matter how complex, better administration, online transaction tools and client education modules – and to top it all off, they want it for a cut-price deal.  

As their demands grow more insistent, platforms are in a race to cater to their every need. 

But planners are not sitting around waiting and are exploring their own options, including moving off-platform and administering the clients themselves. 

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Large scale improvements to adviser-facing functions also seem to be on the back-burner, with platform resources being shifted towards compliance, and legislative uncertainty contributing to an overall drop in the amount of money being spent. 

But the importance of platforms in helping advisers comply with opt-in and fee disclosure can’t be under-estimated.

Platforms can offer impressive capabilities in this space, but while advisers so far seem happy to let them do most of the work, some are warning against letting platforms control the process too much. 

The perfect platform 

Nobody would pay twice for the same product if they could avoid it, and planners are tired of having to do that with platforms.

There is a growing realisation among the platform providers that advisers are looking to reduce the number of platforms they rely on. 

BT Financial Group (BTFG) has noticed a trend among planners towards platform consolidation, and cost is a driving factor. 

“Instead of using three or four platforms, we are seeing advisers consolidating all their business into one platform in order to get that real efficiency in operating their back-end processes,” says BTFG head of platform product Kelly Power. 

The same emerging trend is obvious to Colonial First State (CFS) as well. 

“There’s certainly some evidence that advisers are using – on average – less platforms,” says CFS general manager of strategy Scott Durbin. 

According to Durbin, one of the drivers is planners choosing to partner with well-resourced platform providers, with a proven track record of lowering fees and improving functionality. That means that some platforms will either have to improve, or fall by the wayside. 

In years past, advisers had to look to multiple platforms to cover all investment products that a client might want to invest in.

But planners are beginning to grow tired of dealing with up to four platforms just to ensure that they can offer the full spread of products to their clients. 

“They’re doing that because they have needs that could be met by one platform but no platform actually does it,” says head of strategic relationships at OneVue, Brett Marsh. 

While the need for different platforms doesn’t normally extend as far as using more than one platform for one client, it does mean that the adviser has to deal with different systems for different clients, which can be a frustrating exercise. 

Platforms have included a much broader range of assets beyond traditional managed funds in recent years, including things like listed shares, fixed income, term deposits, and bonds. But it would be foolish to think that those things alone would satisfy the need of an underlying client. 

Marsh reels off a quick list of more complicated investments that advisers face yet are not widely available on platforms. 

What happens if someone wants to introduce a non-recourse gearing strategy in their self-managed super fund (SMSF)?

What happens if they’re running a small business in their SMSF and they want to hold business real property? What happens if they’re a negatively geared investor?  

A complete platform experience needs to be able to handle all of the very common assets that a client holds, as well as some of those not-so-common assets for larger clients.

But it also needs to be able to competently and confidently manage all those assets, including the valuation and tax components. 

The perfect platform experience becomes even more unlikely when you consider that advisers now expect seamless administration, online transaction tools, and investor education modules on every platform.  

Informed advisers are looking for the best software and system capability to reduce the cost of running a compliant planning business, according to Rubik Wealth managing director Wayne Wilson. 

“The holy grail is to get it all in the one space and you only turn on one system and it does everything for you,” Wilson says. 

Shifting off-platform 

The undercurrent of dissatisfaction with platform capabilities and investments is pushing advisers to consider moving their clients off-platform. 

Platforms have traditionally shied away from offering more complex investments like gearing strategies, or perhaps they just haven’t got their heads around it.

But if a platform can’t keep up with where clients are at, then advisers are going to start looking for alternative solutions. 

“Perhaps that’s why some people are questioning the role of platforms, because not all platforms can give you that full client experience,” Marsh says. 

Alarmed at the number of discussions they were having with planners about the pros and cons of moving off-platform, CFS commissioned a report in November last year to back up its arguments. 

Despite research showing that the use of platforms was stable, many practices were contemplating moving their clients off-platform and administering them themselves, Durbin told Money Management. 

The Praxis Partners report looked at two practices – one off-platform and one on-platform – and the costs they each had to bear in their different approaches. The key idea of the report was to introduce a fact base to sit behind the discussion with advisers, Durbin says. 

“There seems to be a disproportionate amount of discussion versus the actual reality of any moves off-platform,” he says. 

Unsurprisingly, CFS advocates that planners should stay on-platform. 

“We know from our experience that there have been some negative experiences for advisers when they’ve actually moved off-platform, and [the paper] was really to put some facts around that discussion when it happens,” Durbin says. 

There may be cases where an off-platform solution does work for clients and their advisers, and CFS wanted to understand in which circumstances it might be appropriate, he says.  

One clear finding from the report is that the cost of administration – which shifted to the financial planning practice when they go off-platform – quadrupled. 

Eureka Financial Group was one of the practices in CFS report. Adviser Andrew Jones wrote in Money Management that when Eureka initially decided to move off-platform, it seriously underestimated how much administration it had to do to look after its client’s portfolios. 

Eureka didn’t realise just how much work went into administering managed investment schemes, direct fixed interest investments, international shares and the challenge of domestic equities, Jones wrote. 

It also couldn’t accurately show its clients how each asset class within their portfolio was performing, and ended up having to build its own reports from scratch, adding another layer of cost to the business, Jones wrote.  

Going off platform would only be economically viable if the planning practice has a small client base of high net worth SMSF clients, and above all specialist administration capabilities, Durbin says. 

But while Eureka’s experiment ultimately didn’t work, it left in the first place because it wanted a more unrestricted investment strategy. 

It needed more flexibility between term deposits, listed investments, and managed funds. Many of its clients were also moving into pension phase, and its existing master trust platform didn’t cater for that, Jones wrote. 

Unless platforms can figure out a way to deal with this type of dissatisfaction, it is likely that more and more advisers will be driven to try their own thing and move off-platform until one practice hits upon a winning solution. 

The financial planner who wants everything 

Most platforms claim that they are constantly improving their functionality and that the vast majority of clients are very happy with the services they offer. 

“With the choice available on platforms, my view is that they remain relevant for the vast majority of clients,” Durbin says. 

The choice of managed funds, equities deposit products, and fixed interest products make them relevant for the vast majority of businesses as well, he adds. 

However, platforms are also pre-empting the search for better solutions by creating tailor-made wrap platforms for advice groups with everything they need. CFS recently announced that it launched a full service wrap platform for dealer group Infocus. 

General manager of custom solutions Chris Stevens said that CFS continues to develop products and services in the market to meet its clients’ needs for adaptable platforms solutions. 

Infocus wanted to make sure it had a Future of Financial Advice (FOFA) compliant platform available to its advice network, chief executive Rod Bristow says. 

Infocus maintains an open-architecture approved product list (APL). 

The platform was populated with the Infocus APL, as well as model portfolios created by the dealer group research team. 

Price was a key issue for Infocus, Bristow says. 

“The way that platform price is likely to go is towards a naked pricing-type model, with advisers then adding their adviser service fees or whatever other fees on top as part of the advice process.” 

That structure will also give complete transparency for all users of the platform, he adds. 

Price is one of the key issues for all advisers facing margin squeeze. 

Premium Wealth Management entered into an agreement with AdviceIQ Partners early this year with the aim of combining the two companies access to BT Wrap.  

The arrangement is based on bringing together the companies’ two respective BT-badged wraps using AdviceIQ’s badge, which is operated by its portfolio service. Premium will access the financial services licence underpinning AdviceIQ’s portfolio service. 

Premium Wealth Management chief executive Paul Harding-Davis said it would generate substantial commercial benefits for both parties in terms of underlying platform costs. 

Back-office efficiencies had already been identified, he said. 

Executive director of AdviceIQ Bronwyn Speed said AdviceIQ would look for other administration and infrastructure areas where it could work to operate more efficiently or expand its range of services. 

Power admits that platforms have to change the way they do things if they want to attract advisers to their offering. 

The future is about offering value right across the value chain, she says. 

That includes catering to scaled advice models, where the client might execute a plan written by an adviser; high net work private banking advice models; and simple offers for clients who are just starting out on their investment life.  

In a Money Management roundtable last year, platform providers were in broad agreement that they needed to focus on the consumer to make their product still relevant to the advice market. 

In the immediate term, planners are driving all business on to platforms, but that dynamic will start to change over time, Power said last year. 

Chief executive of OneVue, Connie Mckeage, echoed this view. 

“We’re seeing a more disintermediated space. The consumer has more power now, but that doesn’t mean the demise or even the deterioration of the market. It’s a new type of growth and much more aligned with limited advice,” she said. 

Advisers themselves are asking platforms for more consumer capabilities that the adviser can keep track of as well, according to Macquarie executive Tony Graham. 

Over time, clients will be able to do more in conjunction with their adviser, and platforms will need to think about how they adapt to that, Graham said. 

The investment that is needed to be competitive in the new advice space is significant, according to Power. 

Companies must have scale, as well as invest in very efficient technology, she says. 

BT is investing a significant amount of money over three years into a business transformation process that Power terms the “future of platforms”.

It involves improving mobile technology, more international assets and SMSF services, as well as Separately Managed Accounts and Investment Management Agreements. 

Part of the reason that platforms are putting so much work into orientating themselves towards consumers is a desire for platforms to differentiate themselves.

At the top end, platform functionality has started to converge, says Investment Trends senior investment analyst Recep Peker. 

If the platforms give more educational modules to planners they will be more likely to continue with their services, he says. 

Where is the investment going? 

Platforms appear to be more concerned with making sure they are compliant with incoming regulations than improving their overall functionality. 

Overall spending on platforms has dropped by about $30 million to December last year, according to Investment Trend’s latest platform report. 

While that still leaves a healthy $100 million on new development, it begs the question: where has the money gone? 

Peker believes the platforms are holding off expenditures because of legislative uncertainty, while the resources that remain are being shifted into more compliance-oriented work, rather than adviser-facing functionality. 

Power told Money Management recently that BTFG was working with dealer groups to adjust their commercial models to ensure compliance with the Australian Securities and Investments Commission’s (ASIC’s) guidelines on conflicted remuneration, and with the release of Treasury draft legislation on grandfathering provisions. 

SuperStream, MySuper, and the United States’ Foreign Account Tax Compliance Act are all pulling resources away from new investment products and advice tools, Peker says. 

Some platforms have flagged busy development schedules for the coming year, so spending might burst forth again soon.

Others have already built a lot of functionality, and they will just tweak it when legislation is finalised and release it to planners, Peker says. 

Unsurprisingly, platforms reject suggestions their overall spending has dropped.  

“We’ve actually increased spending on platforms over the past three years, year on year,” Power says.  

“We’re spending a significant amount of money into complying with regulatory change, so that obviously includes FOFA, and not just FOFA in terms of technical compliance, but actually using FOFA as an opportunity for the platforms to provide even better value and efficiency to advisers,” she says. 

Platforms can help advisers increase efficiency, improve services and value, and still develop at the same time, Durbin says. 

The amount of money that providers are putting into the platform isn’t as important as what they do with it. Some platforms aren’t just focused on delivering a service for advisers, but are also delivering products which are manufactured in-house out to the general market place. 

A number of businesses have also spent money in an area where they’ve chosen not to move to the next step, and that also artificially inflates the total amount.  

The money isn’t just an amount to spend, but part of an overall strategy, Marsh says. 

“You can waste a lot of money in spending money and it makes a big number, but what is the strategy that underpins it?” he asks. 

“I’m probably less concerned for the industry in reducing that number. I’d be more concerned about making sure that people don’t waste when they spend their money,” he says. 

It also doesn’t seem to be a worry for Investment Trends. Chief financial officer Eric Blewitt noted in a Money Management roundtable last year that the levels of satisfaction among advisers is increasing. 

Blewitt said that in the year before last $130 million was invested into the major platforms, and their value proposition has been driven higher and higher as a result.