Pricing up the platform

With regulatory change shining a spotlight on fees, platform providers are under increased pressure to justify their value. Perhaps innovation is the key to retaining adviser business, Kate Cowling writes. 

At some point in their career, if not constantly, advisers have to weigh up whether their values and ability to make money are still aligned.  

All businesses have costs, from staffing costs to administration, to marketing, to education. 

But when the wheels of regulatory and technological change start spinning at a quicker rate, it’s natural for advisers to question the continuing value of the functions they are outsourcing and whether there’s a cheaper, more efficient way things can be done without compromising their value proposition.   

Platforms have long held a place in that gully between efficiency and cost.  

Around a quarter of planners are rejecting the costly proposition, recent Wealth Insights research found, with the Future of Financial Advice (FOFA) reforms reportedly behind the more away from platforms.   

“Planners are indicating they are not prepared to pay a premium for using a wealth management product that is not offering great value,” Wealth Insights managing director, Vanessa McMahon, said.  

It’s not the only trial for the platform space either, with regulatory change raising new challenges for providers, particularly in the last two years.    

According to Investment Trends research released earlier this year, platform providers were spending up to 50 per cent of their budgets on keeping up with regulatory compliance.

However, as cost and regulatory pressures continue to clamp down, platform providers are still doing what they can to pre-empt any shift away from their offering with innovation.  

“At the heart of this, there’s a bunch of things around making it more efficient for the adviser,” Colonial First State’s (CFS) Head of FirstWrap and Investment Products, Peter Lambrie, said.  

“It’s about trying to reduce the amount of boring paperwork or non-value add stuff that they are doing so they can spend more time on their clients.” 

But is it too little, too late? 

Exodus or opportunity? 

According to the Wealth Insights research, unveiled at Money Management’s Platforms and Wraps Conference last month, the prospect of losing clients through cost fears around fee disclosure statements was prompting a move away from expensive wealth management tools. 

McMahon said the trend was being driven by high net worth clients, who were largely as savvy and knowledgeable as their advisers when it comes to the cost of tools like platforms. 

Nonetheless, at the platform level, the shift has not yet been discernible, according to providers. In fact, some have even noted a growth in interest. 

Macquarie’s head of platforms and insurance, Justin Delaney, said the cost “noise” is losing prevalence, particularly when compared to the post-Global Financial Crisis (GFC) era.  

“I think it’s an ongoing question,” he said, of the move away from platforms.  

“Some advisers will continue to look at their internal advice models and the efficiencies of their businesses and I think it really comes down to where they see their ability to add that core value. Is it in the administration or transacting piece or is it in the advice piece?” 

However, what advisers may initially gain in cost savings, they lose in efficiency and in turn, revenue, he said.  

“We did some research a little while ago that looked at the efficiency of administering relatively complex portfolios on and off platform. The results of that were the average adviser using a platform can service around 120 clients and that dropped down to about 70 if they were doing it off platform. 

“There’s no doubt that platforms have a challenge associated with them, but I think they also do deliver an efficient way for advisers to manage complex portfolios.” 

Indeed, some advisers leave platforms and find the administrative and risk burden too heavy and come back, Colonial First State’s Lambrie said.  

“We have actually seen advisers going the other way, who have tried that off platform piece and just found from a scale and efficiency perspective it was a real struggle and it was also a risk element - if they get stuff wrong, they are then on the hook,” he said.  

For many of CFS’s adviser customers, the risk management capability has a significant impact on their decision to stay on platform, he added. 

It often comes down to the scale benefit, according to Lambrie. 

“If you think about things like a class action on a particular share, it may be easy to manage that if you’ve only got a handful of clients, but once it starts to get to reasonable numbers, managing that manually yourself is probably inefficient and potentially risky,” he told Money Management.  

“The experience that I’ve heard from discussions with advisers is it’s sort of manageable at certain levels, but once it continues to grow and they get that bigger size, it becomes inefficient to try and manage it manually themselves.” 

Indeed, for AMP’s head of platform architecture and development, John Keating, the efficiency card has always been the key to keeping advisers on a platform and is the most persuasive selling point for new customers. 

“For us it’s about making the advice process easier and more efficient, so they can actually sit down with the customer and use that as part of the conversation around their advice goals and how their progressing and actions that they need to take going forward,” he said.  

Keating said he hadn’t seen a shift away from platforms at a notable level, but justifying the value of staying on platform was always going to be an ongoing issue for any provider. 

“It’s a regular conversation with advisers around platforms and platform administration fees and the value they provide, so we need to really make that clear and make it tangible for both the adviser and the customer,” he said.  

“Platform development can be capital intensive as well, so there’s making sure we prioritise and do the right things. Sometimes the right way to go about it is taking a fairly structured approach and setting out a road map and sort of working through that.” 

And while some advisers with high net worth client catalogues are looking elsewhere, platforms are starting to gain ground in areas that have been previously slow to gain traction, like insurance, according to For BT Financial Group’s national life insurance product manager, Scott Moffitt.  

He said in the last 12 months, platforms have evolved as more of a “one stop shop” option, which has seen existing adviser traffic branch off into new areas.  

“Insurance trailed a bit behind that core base of what platforms have tried to deliver... (but) we’re now definitely seeing that more insurance is being taken through platforms,” he said. 

“Obviously that’s driven by several things - one being the quality of the solutions that are available on the platforms. Gone are the days where a customer who wanted to buy insurance on a platform was only limited to restricted offerings and if they wanted to service their whole need they would also have to buy a new offer, with a new process off platform.”  

To innovate or not to innovate 

Despite channelling a high proportion of their budget into coping with the regulatory burden, platforms have made strides with delivering on adviser demands in the last year, the Investment Trends research showed.  

Advisers reported they wanted usability, support and performance reporting from their platform providers - needs that were largely addressed in 2013, according to the report.  

“The platform functionality arms race has continued,” Investment Trends senior analyst Recep Peker said. 

“Common areas development focused on at an industry level include enhancements to usability, adviser support, reporting, direct shares and corporate actions functionality, while building Fee Disclosure Statement functionality from scratch.” 

Peker noted what many providers saw as an undercurrent behind the rapid development of the platform arena - competition-driven innovation.  

“Advisers and their customers are demanding access to information when they want it, a sense of control and ability to access tools and controls. Whether that be on a MAC or a tablet or a mobile device,” AMP’s Keating said. 

It’s an expensive investment, according to Colonial First State’s Lambrie, but is often a key differentiator in an increasingly crowded market.  

“From a platform perspective, we have a strong parent who is able to continue to invest in the platform throughout the economic cycle. That is really important with the technology improvements and all the regulatory reforms, and develop a platform to make it efficient and relevant,” he said.  

That innovation manifests with functions like an electronic portal for tracking applications at a headline level down to micro things, like simpler password reset functions, he said. 

For Macquarie, innovation has been targeted around managed accounts functionality and enabling a wider asset mix on the platform.  

However, Delaney said there’s only so much platforms can go on the technological innovation front without metaphorically reinventing the wheel.  

“A platform can only go so far and I think if you look at the complexity and the quality of the plaforms in the Australian market, as they currently sit they are very rich in terms of the functionality,” he said.  

“I don’t think there’s a big gap that’s being looked to fill.  

“I think the next wave of innovation and change will really be how the platforms start to enable a more connected and rich client engagement experience and support advice models across that spectrum of how advisers want to deal with their clients.” 

AMP’s Keating disagreed with Delaney’s innovation stance and said there is much room to grow.  

“We’re constantly looking at a three to five year view in terms of innovation¨ (but)There’s a balance of not looking too far out given how quickly things are changing in technology,” he said. 

AMP has responded to innovation demands with a mobile and tablet application for its North platform.  

“Advisers who use any platform use them with an expectation that providers continue to invest in those platforms, that those platforms continue to evolve in terms of features and functions,” he said.