Meeting demand or missing the mark?

The emerging duopoly of multi-functional financial planning software providers in the Australian market is a response to demand for well-capitalised, voluminous providers capable of supplying integrated solutions, according to key players in the space.

In April, industry heavyweight Iress Market Technology made waves when it completed the acquisition of another core software provider, VisiPlan, from wealth management infrastructure solutions provider IWL.

Just 18 months earlier, IWL had purchased software platform Boss, making Iress’ move all the more poignant by folding four independently owned platforms into one.

Iress’ stable of products now includes the broad-based planning software packages VisiPlan and Xplan, along with its risk-centric offering PlanTech. The company has indicated that while technology consolidation may occur over time, it will maintain support for clients in all product suites.

At present, Iress’ only direct competition comes from the majority Macquarie Bank-owned provider Coin, with its Coin Office product.

According to the most recent market-share statistics available from Investment Trends, at the end of 2006 the industry breakdown saw VisiPlan (then owned by IWL) holding a majority share of adviser’s desktops on 28 per cent, followed by Xplan (15 per cent), and Coin Office (10 per cent).

The following two top-rankers are both classified as hybrid software products because of their proprietary links with platforms: Asgard’s Assirt Desktop/AdviserNET held 9 per cent and Navigator’s n-link held 6 per cent.

There is a broadening gap between this top tier and the remaining players, with around 10 other providers delivering specialised financial planning software to planners’ desktops, each holding market-share ratings in the low single figures.

Mark Johnston, principal of Investment Trends, qualifies the market-share findings by noting that its analysis excludes the bank-owned, branch-based financial planning groups, which are held almost exclusively by Coin, but includes non-branch-based dealer groups and independent financial planners.

Based on the above figures, the latest Iress acquisition means it is now the software provider of choice for at least 43 per cent of advisers surveyed, and Johnston estimates it has grown further since the end of 2006.

“Even if Iress loses a number of relationships in the short term, they’re still going to be at 50 to 60 per cent of planner desktops, so it’s actually a huge development in the industry,” he said.

Describing the financial planning software landscape in recent years, Johnston said “planners wanted to move risk functionality out of the stand-alone piece of software and to centralise it into planning software — there was very strong adviser demand for this”.

Looking at this shift, he believes the current trend in planner software does not augur well for this group.

Using the specific example of Iress’ PlanTech risk advisory module, which was acquired in September 2006, Johnston surmises the broadening gap between the multi-functional and niche providers can also be linked to the business reality of economies of scale.

“Stand-alone planning software providers were facing a losing battle, the ground was moving from underneath them, and it’s a much bigger exercise for them to build out all of the investment planning functionality than it is for the planning software providers to bolt on the risk functionality,” he said.

A recent Citigroup study released in its Trends in Wealth Management newsletter alluded to another potential outcome of planning software’s increasing functionalities when it said: “We suspect this could involve solutions that circumvent the platform altogether.”

With considerable caveats, Johnston agrees this could happen in the medium to long term.

“All they theoretically have to do is add the custody piece,” Johnston said, but added that doing this is no simple undertaking, would come at considerable cost and would be extremely challenging if not unworkable under a flat-fee model.

“I would say that a number of platforms are keeping a very close eye on how that evolves and looking at them as a potential competitor in the future, but it’s no small thing.

“There is definitely a shift in the balance of power between platforms and planning software at the moment, and in response to that we’re seeing a lot of the platforms either more tightly integrate with a particular piece of planning software or develop their own.”

Two prominent platforms that developed their own software are Asgard, with Adviser-

NETGain, and Navigator, with n-link.

These allow for data-sharing between platforms and software, providing planners with a limited functionality tool to use when dealing with relatively straightforward clients not investing across multiple entities.

Neither Jennifer Creaton, Aviva’s general manager, client services, nor Edrick Ho, Asgard’s head of practice solutions, see the relationship between platforms and software providers as a strict dichotomy.

Creaton sees greater co-operation between platforms and software packages, with Navigator currently sharing data feeds with the major providers.

“We work very closely with third-party software providers Coin, Xplan and VisiPlan in making sure that we can share information with them.”

Commenting on Iress’ recent VisiPlan acquisition, Ho said: “I think it’s something that needed to happen. You need to have significant investment in order to provide this style of functionality.”

While not discounting it, he does not believe multi-function software providers could simply bolt on a custody module and begin administering money.

“People are overlooking that it’s not just about functionalities, but administering money,” he said.

Andrew Walsh, Iress Wealth Management general manager, firmly believes dealer groups are demanding scaled software entities offering integrated products that relate to the various advice specialisations such as wealth management, superannuation and risk.

“I think the landscape of software vendors has changed to one where [clients are] provided by well-capitalised, well-funded, supportive vendors.

“They want institutions to provide the solutions, they don’t want individuals providing solutions that are ‘here today, gone tomorrow’. That’s what well-funded software vendors can provide,” Walsh said.

He believes its burgeoning market share is related to the trust commanded by bigger, well-established companies.

“[Planners] want to see a heritage of long-term software support and provision … we’re not mucking around, we’re here for the long term to provide genuine solutions and are continuing to support those solutions,” he said.

Walsh sees the landscape changing significantly compared to 10 years ago, when there were niche providers providing “a tool here and a tool there”.

“We see it a bit differently today; we’ve got platforms that have niche expertise but in an integrated platform sense.

“We’re providing the scale, rigour, support and capitalisation, but still providing the areas of specialty like risk, modelling, portfolio management, CRM (customer relationship management) but all integrated, that’s what I think is the definition of the new adviser planning tool,” he said.

This begs the question: in a world of tightly integrated products that also deliver niche expertise, what happens to the niche players?

Walsh suggests tough times lie ahead for these competitors.

“Nice niche tools, but not integrated. Without integration, an adviser has to re-key data … it just puts a number of barriers up, whereas we’ve got tools that meet those requirements and our clients are quite happy to have this as part of their desktop,” he said.

The other dominant multi-functional player, Coin, provides financial planning software in the areas of CRM, workflow, fact-finding and various dimensions of modelling, including financial strategy modelling.

“Essentially, you’re seeing VisiPlan, Xplan and Coin in the fully functional offering,” Tony Graham, Coin managing director, said.

He believes planners are recognising consistency as one of the keys to building value in practices while meeting compliance requirements: “It’s not the whole answer but it’s a tool that can help them do that.”

Seeing it as a positive for planners and ultimately their clients, Graham believes the consolidation of providers that can deliver these products in a single, consistent package represents a further step towards the ultimate objective of straight-through processing.

While Iress has taken the acquisition route in order to build on the adviser functions of its software, Coin has opted to engineer its own modules for areas such as risk.

“What we’ve tended to do is build that functionality; we’ve built our own insurance module, INC. It’s easier for us to build our own so it’s more easily integrated,” Graham said.

While Coin and Iress believe they are meeting the depth of demand across the financial planning space, some niche providers believe these groups leave a number of openings that can be exploited by existing players or new entrants.

One of these is Midwinter Financial Services, providing a front-end, point-of-sale software tool called Reasonable Basis, which automates the advice process and includes a modelling component to show the effect of various strategies at a fixed point in the future.

Matthew Esler, Midwinter general manager, strategy and technical services, explained that as a truly front-office product, Reasonable Basis has identified a niche that neither of the multi-function providers currently fill.

“We don’t follow the Coin, Xplan or VisiPlan approach in trying to be all things to everyone. We’re keeping it as simple as possible, and we want to make it as fast as possible, and want advisers to be able to generate strategic solutions that their clients can follow and that they can implement easily,” Esler said.

He suggests that advisers only use a relatively small proportion of the total functions made available by the full-bodied systems of Coin and Iress.

“What we’ve tried to do is ensure our software is going to be … 100 per cent utilised at all times,” Esler said.

Responding to Walsh’s suggestion that such products are “nice niche tools but not integrated” and that planners do not want this piecemeal approach, Esler said “that flies in the face of the success that we’ve been able to achieve in the three or four months that we’ve been distributing our software”.

“There is a need to have an all-encompassing tool, but there’s got to be a balance between what’s offered and its usability.”

He believes the multi-functional products are complicating things for planners.

“They’re finding there’s more and more things they can do with their programs, and I think they’re getting more and more lost … multi-function products are effectively a full-time job for an adviser,” Esler said.

Customer Acquisition and Retention Management (CARM) is another niche software provider catering for the front-office advice aspect of the broader planning process.

Matthew Lock, managing director of CARM, believes that the ‘one-size-fits-all’ solutions of the multi-function providers may be better suited to what he described as ‘free range’ financial planners — those who operate under a freer rein outside the close direction of a dealer group.

“The Xplans and Visi’s are more for free-range planners rather than the planners who work in a more prescriptive environment,” he said.

Lock also thinks that in the race to try and cater for all adviser functionalities, Coin and Iress are leaving the door open to an as yet unidentified third party.

“When there’s so much dominance, this duopoly, in the medium term, will create an environment where a third player will emerge.

“These guys are going to commoditise themselves very quickly … functionally and in a service and pricing sense, they will be identikits [of each other] not too far down the track.

He said this will have the effect of “arbitraging away any advantage they get from innovation”, because any new development will always prompt a competitive response from the other.

Lock believes planners will look for a third party in order to create some positive competition within the market.

“Planners like choice … given an option [they] will try and seek out the choice, the other option,” he said.

“If the major players think they’re going to just continue on absorbing the smaller players, then they could be caught resting on their laurels if the right circumstances combine, which can take an innovator into the mainstream.”

On the question of whether software providers will make platforms an endangered species, the most widely accepted view is that while it is theoretically possible, there are substantial barriers and even reluctance on the part of software providers to become involved in this space.

Walsh said that Iress has no desire to move into the back-end custody and registry capabilities of platforms, and that concerns raised by the platform sector are in part fuelled by a lack of understanding.

He said that its efforts to work more closely with dealer groups and financial planners are being mistakenly perceived as a “power play”.

“We’re not interested in power plays at all. We’re just looking to value add our clients with software functionality.

“Platforms are the custodians of assets, we’ve got no interest in doing that, we don’t do that across any of our products,” Walsh said.

He thinks the blurring of the lines between software providers and platforms instead represents an opportunity for platforms to work more strategically with front-end software providers.

“They’re a bit concerned about what we’re doing in the front-end, [but by] worrying about a turf war, they are missing out on the opportunities that tight integration brings,” he said.

Esler also agrees it could happen, but has his doubts because “it would take some pretty smart software to get there, and I don’t think they’ve got it at the moment”.

“I think that it’s a fair way down the track, and I think that what the platforms offer with consolidated reporting along with the custodial and administration aspects are very, very difficult to do through a software program,” Esler said.

He thinks the required service support for such a product would be hard for software providers to emulate: “Xplan, Coin and VisiPlan, are notorious for not providing the greatest levels of service or training, whereas the platforms pride themselves on those service elements.”

When asked whether any increasing penetration of software providers into platform territory would be a good or bad thing for planners and their clients, Esler was ambivalent.

“It depends whether any costs saved would be passed onto the client or not. Certainly, if you look at the costs of those software programs, they’ve increased quite significantly over the last few years because they’ve been adding extra modules.

“If they were to add an additional module that would mean platforms would become largely irrelevant, then I’m sure [software providers] would increase their prices accordingly.”