Cerulli repeats platform shake-up prediction

THE US-based Cerulli Associates research group has reaffirmed its much publicised prediction that Australia’s investment platform marketplace is heading for considerable consolidation.

In a report on Australia’s retail fund management marketplace in 2000, Cerulli predicted that the five largest platform vendors would dominate managed fund distribution by 2004.

In its latest report released last week, while acknowledging that there has been a decline in market share for some of Australia’s largest platforms, the research house says the market is on the way to fulfilling its prediction.

Cerulli figures show that Australia’s five largest platform vendors have represented between 70 per cent and 80 per cent of platform-based funds under management since the end of 1998.

Although contradicted byAssirt, which estimates the top five vendors hold only 66 per cent of the market, Cerulli says this is still a dominant presence.

Though the number of platforms may appear to be increasing, Cerulli Associates says this is a result of increased badging, or labelling of existing platform technologies by dealer groups.

Cerulli says despite increased badging, few new platform vendors have emerged since 2000.

And the research house says there is no reason that the Australian platform marketplace will not continue along this “process of natural selection”.

However, local commentators have questioned this, with Tom Collins Consultancy chairman Tom Collins saying that consolidation has not taken place in the platform market in recent years.

Although he acknowledges an increase in badging services offered by groups such asBTandMacquarie, Collins says new players, includingAvanteos,SyscorpandNetwealth, and new products, likeColonial First State’s FirstChoice, have meant the opposite of consolidation.

However, he believes consolidation will take place in the future, predicting the number of vendors would drop to between eight and 10 within three to five years.

This contradicts Cerulli’s forecast, which Collins says may be inaccurate because the research house has extrapolated assumptions from the US market.

“American distribution is dominated by some very big players, whereas we have dispersed distribution and a number of strong dealer groups, making the Australian structure different,” he says.

“I think there has to be consolidation at the platform provider level, but each of the major institutions will want their own platform.”

Collins says this will mean the four major banks, as well as groups such as AMP,INGand Macquarie, and independent providers like Avanteos andAsgardwill be providers in the market.

Cerulli says the strongest catalysts for consolidation in the platform sector are financial planners due to their control of fund distribution.

A survey conducted by Cerulli indicated that the average number of platforms used by planners has dropped from two to 1.7 between 2000 and 2002.

Though Assirt’s data conflicts with these figures, both research houses agree that planners would like to use fewer platforms going forward, leading to further consolidation.

Cerulli says the other major catalyst will be fee compression, which could be hastened by the increasing market share of custodial wrap programs, as well as fee decreases on other master trust products due to an expected wane in demand for functionality.

In what was a wide ranging report on the Australian market, Cerulli also labelled Australia the world’s most attractive marketplace into which fund managers could expand.

Cerulli says the reason for the attraction is Australia’s sophisticated fund distribution infrastructure and compulsory savings system, which is fuelling exceptional growth.

According to the research house, Australia has experienced the strongest cumulative asset growth of any major retail fund marketplace in the world over the past three years.

This has been reflected in a compound annual growth rate of 15 per cent since 1999.

Australia’s $324 billion retail asset management industry is now the world’s 10th largest, according to the research house.