Platforms destroying direct retail market

By Michael Bailey

The rise of platforms is killing off small fund managers, with advisers today placing only half the assets direct with managers that they did three years ago.

An Assirt/Wealth Insights survey of 819 advisers, conducted in March, found that just 20 per cent of their clients’ assets were now invested directly with fund managers, down from 38 per cent three years ago.

The direct channel has been usurped by platforms, and in particular the no-frills platforms inspired by Colonial FirstChoice.

The survey found that of the top five most popular platforms among the advisers in the past 12 months, three were low-cost ‘new generation’ platforms, which did not even exist three years ago. They were Colonial FirstChoice, Perpetual WealthFocus and Skandia One, encroaching on the turf of Asgard and Navigator.

The recommended lists of these cost-conscious new platforms are much shorter than their predecessors, said Wealth Insights managing director Vanessa McMahon. Therefore “competition for shelf space is intense, with preference often going to those fund managers with more prominent brands”.

McMahon said the rise of low-cost platforms had three major implications for fund managers.

“Firstly, the collapse of retail funds impacts on their bottom lines. Secondly, fund managers lose investor relationships — the investor interfaces with the platform, not the fund manager. Thirdly, with the distribution of managed funds now controlled by platforms, the fund managers must ensure they are listed on platforms.”

The fate of many smaller, less popular fund managers would be to eke out a living in the dwindling direct retail space, McMahon said.