The wrap evolution

Brett Himbury

There continues to be much discussion in the financial services industry regarding the role of platforms, including some highly topical issues such as rebates.

It is worthwhile to take a brief step back and review the evolution of platforms. In so doing perhaps a broader perspective as to what has happened, the tangible benefits now on offer, as well as the implications for all players should the rapid evolution continue, can be provided.

Those who have a couple of decades in the industry can cast their mind back to the early 90s. Investors were inevitably offered a range of retail unit trusts. Financial planners and their clients struggled with ongoing consolidated reports via software that could build an initial plan yet could not easily cope with regular reporting.

Witness the rise of the multi-manager master trust bringing efficiency gains to planners and consolidated reporting to their clients.

In the very early stages we even saw some fund managers denounce the rise of such a vehicle and actually refuse to allow such vehicles access to their investment products. Some may have even felt this view was vindicated with the collapse of the Excelsior Master Trust in the early stages of the evolution.

Fast-forward from these early days, and a couple of major trends have emerged, including:

~ the cost to the investor has reduced from over 300 basis points to substantially less now, depending on whether a full or mini master trust or wrap is used;

~ service has evolved from a consolidated annual report to a comprehensive service for both planners and clients with a diverse range of electronic access and functionality features;

~ master trusts have moved from nothing in terms of funds flow 15 to 20 years ago, to now absolutely dominating flows;

~ a relatively unstable environment administratively and corporately has developed into a strong business with most major platforms now provided by some of the biggest corporations in the country;

~ a full range of investment choice, managed and direct, is provided across a diversity of services;

~ the strengthened financial position of platforms and dealer groups that have also transferred some of the infrastructure that was in the fund manager into their own business; and

~ the continued rise of model portfolios and fund-of-funds as platforms increase their own investment research capability and look to add further value to dealer groups, planners and clients.

While the financial services industry has a great capacity to focus on issues such as rebates, let’s not lose sight of this evolution and the benefits for all.

Some fund managers may be threatened by the evolution as the impact on their business has reduced margins.

As happened in the early days where different managers would take a different approach in supporting platforms, so too will this be the case now.

At Tyndall we firmly believe that the evolution has resulted in a stronger industry, offering clients greater stability and a significant array of high quality services at prices that continue to reduce.

Our challenge as a manager is to continue to watch and listen to all our clients, including platforms, and respond in a positive manner, while managing our own economics.

Being nimble, not having a huge 90s infrastructure, and ensuring product relevance, will be the basis for fund managers to succeed as the platform industry continues its rapid evolution and major presence.

Brett Himbury is the managing director of Tyndall.