It is nearly three years since Boston-based firm Cerulli Partners made one of the biggest-ever calls on the future of platforms in Australia — that a major consolidation was in the offing and that by 2004 the number of players would have been reduced to four or five.
Around 36 months later, Cerulli is not backing away from its analysis of the Australian marketplace, but the US firm does concede that a number of events have occurred in Australia to “put a wrinkle” in its original projection, not the least being the emergence of new players attracting new flows.
Indeed, while Cerulli still backs the thrust of its original research, the qualifications it is now applying to that analysis has brought it closer to some of its Australian-based detractors such asBrillient!managing director Graham Rich.
Commenting on Cerulli’s original analysis of the Australian platform market, Cerulli managing director Ben Phillips argues that while things may have happened to alter the time frame, consolidation of Australian platforms is still occurring.
“If you look at how flows are going, then consolidation is still occurring,” he says.
However, Phillips says it is now time to revise Cerulli’s original findings and that he envisages new research being initiated in 2004.
Cerulli’s acknowledgement that it might have erred in the timing of an Australian platforms consolidation cuts little ice with Rich who makes no secret of the fact that he has always strongly disagreed with the Cerulli analysis.
“Their analysis is simply not sustained by the facts,” he says.
Rich argues that rather than consolidating, the platforms arena has expanded driven by adviser usage, and that this trend is likely to continue in circumstances where recent research conducted by AC Nielsen indicates that not only are advisers using more than one platform, many are also willing to migrate between platforms.
“It may well be arguable that in the medium-term there will only be a few profitable platforms but the Cerulli stuff has evolved into something which is not justified by the methodology,” he says.
“I base this contention on two sets of evidence — first, the usage of platforms by advisers. The advisers have indicated they want to use more than one platform and the number of platforms is actually increasing; and, second, the information on flows and the sizes of those flows into platforms clearly show that there’s going to be more than just five — in fact, there are something like 80 platforms in the marketplace and 40 entities running those platforms.
“So I’m quite aggressively dismissive of Cerulli’s view. They may have a good handle on what is happening in the US but Americans don’t have a good track record when it comes to swanning into Australia and getting it right,” he says.
“And the facts simply don’t support what they’re saying and when you think about it, the top five platforms are largely aligned with the banks, so if you buy what Cerulli is saying then you’re essentially saying that’s where all the platforms will reside,” Rich says.
Interestingly, Cerulli’s Phillips does not entirely disagree with Rich’s contention and points to the launch of new platforms by players such asSkandiaandINGas the factors that have created the wrinkle in the Cerulli analysis.
Further, Phillips argues that Cerulli has always said that, in similar fashion to the situation that exists in the US, while there may continue to be a number of players in the Australian market, there are only likely to be a few which are truly profitable.
“We’ve always said that,” he says. “In the US there are two that are profitable — Fidelity and Schwab — and around 70 that are not.”
The broad direction of the original Cerulli analysis has been backed byMacquarie Wrap’s head of product and marketing Matthew Rady, but he says he believes the timing has proven to be wrong.
“We agree with Cerulli’s take on the situation but we think they were a bit premature in terms of the timing when they suggested it would be reduced to four or five by 2004. We think it will take a bit longer than that,” Rady says.
“But it is certainly happening and you’re seeing that with respect toAMPwithAsgardand ING with Macquarie. It’s a case of whether you’ve got the administrative strength to seriously compete. As the technology has improved, the offering has become broader.”
At least some of Rady’s analysis of the outlook is based on his belief that technology has been a driver for the growth in platforms and that the existing technology has been leveraged about as far as it can go.
“Unless there’s a technological breakthrough I can’t see the scope for new players entering the game and such a technological breakthrough doesn’t seem to be in prospect,” he says.
BT’s head of wrap Mark Smith takes a similar view and argues that where business cycles are concerned, platforms are approaching or have reached the saturation point.
“That’s not to say there won’t be more start-ups, but it will take three years to determine whether those start-ups are profitable,” he says.
Smith says he envisages four or five profitable platforms in Australia and several others that are less profitable but sustained on the basis of cross-subsidisation by other parts of a business.
He says that, ultimately, it will become a choice between manufacturing and administration, and people will have to make the call accordingly.
