The Next Generation Investment Platform

The evolution of platforms has seen improved efficiencies for advisers, however not all platforms are the same. Next generation platforms are really stepping things up as Praemium’s Mat Walker discusses.

In the next three decades, $30 trillion in assets will move from one generation to the next in the US alone. In Australia the transfer is estimated to be well over $3 trillion.

In our digital, 24/7-access world, this new generation will expect more. Investors want more focus on meeting their individual goals, more transparency of holdings and fees, simple tailored solutions, and access to more engaging reporting, 24/7.

But none of this is news. The seismic shifts in our industry are no secret.

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FoFA and the Royal Commission have highlighted, some investors are not having a great advice experience, especially ‘fees for no service’, which may explain why 80% of Australians do not use a financial adviser and 90% change advisers when they receive an inheritance. This is a real challenge for the advice industry. It also becomes a challenge for selecting an investment platform, when choosing a platform becomes, not fees for no service, but rather fees for limited efficiencies.

For advice businesses to feel confident in recommending an investment platform to their clients, they need simple and consolidated reporting of all investment assets; broad investment choice with ease and flexibility to make changes; tailored solutions and benefits for every kind of investor they advise; administrative accuracy and efficiency; and the benefit of very competitive fees at all levels reducing over time with increasing platform scale.

Unfortunately, adviser and client expectations often go unmet;

• Many wrap platforms are unable to provide comprehensive, transparent reporting on listed securities.
• Some charge expensive, brokerage with scale efficiencies not passed on to clients.
• Many platforms are delivering a cash rate considerably less than the RBA rate.
• Due to manual or old technology, some platforms have limited choice of SMA model portfolios.
• Some platforms offer a limited range of managed investment options, minimal transparency and no flexibility to in-specie transfer assets.
• In nearly all cases advisers and their clients are struggling to achieve a consolidated view across family members, structures and custody and non-custody investment assets. Advice businesses are often limited in providing relevant tailored solutions to all client segments on the same platform.

The platform landscape has changed significantly over the past 25 years. In the early 1990s Master Trusts was the first platform structure to consolidate investment execution and reporting and simplify the investment experience. Next came wrap platforms, which facilitated broader investment choice, and reporting across super and ordinary investment savings, lower investor costs, greater advice fee collection functionality and the introduction of model portfolio functionality.

While well intended, model portfolio functionality on wrap platforms started to push administrative tasks out to advice businesses, negating some of the key efficiencies and time savings that were provided in the first instance. In response, for predominantly high-net-worth investors we saw the emergence MDAs sitting over regulated wrap platforms (i.e. Limited MDA). However, the adviser and investor experience was arguably no more efficient, and the regulator has introduced a plan to phase this structure out.

A few small Separately Managed Account (SMA) platforms emerged to enable the outsourcing of portfolio management and administration tasks by advice businesses. These have since become one of the fastest growing investment solutions in financial services. Wrap platforms tried to catch up by tacking on SMAs but since the technology requirements for running non-unitised, actively managed investment portfolios are fundamentally different to wraps, they have had varying degrees of success.

But not all managed accounts platforms are the same. Ensuring that investors and their advisers are having a great investment experience requires a truly next-generation investment platform.

A next-gen integrated Managed Accounts platform includes simple and consolidated reporting of all investment assets (including custody and non-custody); broad investment choice with ease and flexibility to make changes; tailored solutions for every kind of investor; administrative accuracy and efficiency; and the benefit of platform scale in the form of very competitive fees at all levels.

Forget fees for limited efficiencies. A great Managed Accounts platform provides the height of efficiency for advice businesses, plus value, transparency and scale economies for investors. Find out about Praemium’s next generation platform.