Will new players enter the platform market?
After a period of consolidation, platform experts are considering whether the market will now see the beginning of new entrants.
There have been numerous platform mergers in recent years, including Westpac acquiring BT Financial Group, Praemium acquiring Powerwrap, and Insignia acquiring MLC.
With this in mind, the future direction is in question as to whether there are now too many or too few platforms.
Speaking to Money Management, Recep Peker, founder of platform research site SuitabilityHub, said: “When I joined the market there were a lot of platforms, it was a real boom time for the market. Ever since the Future of Financial Advice reforms, a lot of platforms opted to consolidate for scale for those lower costs and to be able to build new functionality effectively.
“But now it feels like we are at a point where things will change – will there be more platform providers? Are we at equilibrium now? You can have too many and too few platforms.”
He said these new platforms could be from both new firms entering the market and existing firms which had previously got rid of their platform.
Peker also highlighted a new innovation coming from the UK called Seccl, an embedded investment and technology platform owned by Octopus, which aims to allow financial advisers to improve their service, reduce costs and own more of the value chain by operating their own platform.
“Seccl is like white-labelling but at the next level. It’s not that expensive, and you can have the back-end service of all the admin and execution and stick your own front end on top or white label a platform and bring your own platform experience to your clients.
“The market is big enough in the UK for that to work. It’s interesting to watch and see how they are targeting advice firms and trying to get them to own and operate their own platform. But I think it brings complexities to a business unless you are at a certain scale.
“It is too early to say if it’s the next best thing in platforms though yet.”
The average adviser currently only uses two platforms, usually a primary one and a secondary one they have ended up using as the result of a merger.
Speaking on a panel at the Citi Investment Summit, Netwealth joint chief executive Matt Heine said: “We speak to advisers and 75–80 per cent of them say all money goes to their primary one and the secondary one is there because of incumbency or acquisition and there’s a network of clients who don’t want to move off it.”
Having been founded in 1999, Netwealth was not listed until 2017. Heine warned incumbents will have a difficult challenge ahead to successfully compete on scale and cost.
He said: “To come to market at a very cheap price point, call it 20 to 30 basis points, with full functionality, generating enough income to keep investing back into the platform at the rate you need to invest into, it’s really hard to make that work, and it’s going to be very difficult for other new entrants.
“Our platform pricing is fortunately down about 70 per cent since we listed.”
However, any potential smaller players should be warned that larger ones are not necessarily finished with their merger activity.
Andrew Alcock, chief executive of HUB24, said: “I really do hope we see innovators spring up with great ideas. I’m not afraid or worried about that, in fact we might end up buying them,” he said at the Citi panel.
“The definition of a platform is changing every six months, so you’ll see that shift and how the addressable market interfaces with that.”
HUB24 has previously acquired SMSF and adviser software provider Class, and tech integration service myprosperity.
AUTHOR
Laura Dew
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