The consolidation is coming
In 2000, US-based Cerulli Associates predicted only five wrap accounts will survive in the future.
While this has yet to occur in Australia, there is a feeling that consolidation is on the way for platforms and it could start this year.
Today there are 33 major wrap providers in Australia and another 112 private label platforms that are either available or about to be launched.
Many of these private label wraps are rebadged versions of the major providers’ offerings, withBTthe leading example of this type of service.
Avivachief executive Allan Griffiths believes many of these rebadged operations are unsustainable.
“The Australian market cannot sustain that number of platforms and many would not be satisfying the revenue criteria of their re-badging agreements,” he says.
“Badging creates costs for the provider, such as an extra layer in the call-centre, and if the revenue is not there then these rebadgings will be consolidated.”
It was once thought that $2 billion in funds under advice (FUA) was required for a wrap to be profitable, but Griffiths says this is not enough in today’s marketplace.
“I believe the figure needs to be nearer $5 billion of funds under administration today as pressure mounts on the fees,” he says.
“The fees for wraps will be driven down to 1.5 per cent, and it has already, at 1.8 per cent.”
One development Griffiths believes won’t survive is the so-called ‘baby wrap’.
“Baby wraps are a passing phase driven by markets that give poor returns,” he says.
Griffiths believes with markets starting to offer positive returns, the demand for the cheaper baby wraps will disappear. This coupled with advisers wanting the platform to handle most of their back-office operations will see the demise of the baby wrap.
And Griffiths says research has shown advisers are using either two or three platforms to do their job.
“Technology will enable one platform to link into another and that will also lead to rationalisation,” he says.
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