Why more may be less on a platform

Most platforms in Australia offer a wide range of managers, an even wider range of funds and increasing options such as access to direct shares.

Asgard, for example, has over $3.5 billion in funds under management in superannuation alone, offering investors the choice of 37 managers and 126 funds.

BT’s Superwrap offers the same number of managers (37) asAsgardbut more funds (135). Late last year, BT announced it was expanding the number of funds on offer in Superwrap to 200. Superwrap has also introduced nil transaction fees for listed securities trades through BT’s Online Broker.

A quick look at Table 3 reveals a very interesting trend among platforms — most offer access to an increasing number of managers, (in many cases more than 20). Table 2 shows a corresponding increase in the number of funds (over 100).

But is more necessarily better?

The sector allocation summary table (Table 1) reveals that more than 53 per cent of money in platforms is directed into managed funds and a further 12 per cent is allocated to capital stable funds. So if there are so many choices, why are advisers choosing to mostly go the managed route?

Dexx&rmanaging director Mark Kachor says it is another very telling trend.

“What you can see is funds are being directed into capital stable and managed funds — so essentially what is happening is a lot of advisers are going for the managed options where the stock and asset allocation is done for them.”

Asgard is a good example. Asgard’s fund of fund option, Model Choice, takes in most of the money.

This trend is occurring because, according to Kachor, the platforms themselves want to abrogate the investment selection responsibility.

The industry as a whole, he says, has taken fright at a couple of years of poor returns and is offering an ever-increasing number of investment choices, in order to deflect the risk associated with investment selection back to the adviser and/or the investor.

“Over the past five to seven years, a lot of major managers realised they were vulnerable if they were also investment managers. We’ve had a couple of bad years and if a manager does badly, word spreads and funds start to be withdrawn,” Kachor says.

“So the approach taken was to provide a product or platform offering a range of external managers. Initially the range was small and they were mostly fund of funds.

“Then Navigator came along and just offered a range of different funds and what that did was transfer the investment selection and asset allocation on to the adviser and/or the client.”

The fundamental issue, according to Kachor, is that platforms offer all the bells and whistles because they do not want to look deficient when compared to their peers.

Yet what is obvious from the amount of money being funnelled into the managed options, is that advisers don’t seem to mind delegating the asset allocation and manager selection process.

“Advisers are really hoping for guidance. If they have notionally the choice of 300 investment options, then they are going to need help deciding what to choose,” Kachor says.

If that help doesn’t come from the platforms themselves, then it has to come from somewhere else — and that’s why we’re seeing a third trend, according to Kachor.

This trend is an increase in adviser-centric research, such as that offered byvan Eyk Research’s iRate.

“Advisers are now looking to the research houses to see who they think will be the better performers. So they choose a fund according to its research rating.”

Running alongside all of this is the proliferation of no-frills platforms. Last year,Colonial First State(CFS) launched FirstChoice andINGlaunched OneAnswer. Tower entered the arena earlier this year with ARC. All three platforms take a no-frills approach to master trusts, offering a cheap and simple platform with limited options and investment choices.

“What this illustrates to advisers is that those platforms have some form of quality control. They have exercised some judgement, they have sifted out the better performers. That translates to adding some value to the adviser. The only thing the adviser has to make up his mind about is whether or not the platform’s process is good,” Kachor says.

Less may well be more, says Kachor, and investors might push for it.

But one thing that is certain from the numbers is that, “investment allocation in this market is something no one really wants to do”.