White label platforms challenge institutional providers

Non-aligned dealer groups looking to launch white label platforms have emerged as a key development resulting from the shift to fee-for-service, according to market experts.

Tria Investment Partners managing partner Andrew Baker said dealer groups were looking for ways to boost their revenues by bringing administration platforms and products in-house.

“We’re seeing a lot of exploration of different business models whereby the dealer group can obtain some kind of ownership of the income stream,” Baker said.

Sue Viskovic of Elixir Consulting said the interest in white label platforms came down to dealer group concern at the possibility of volume payments disappearing under the proposed reforms, which would mean that the only way they would survive is by hiking their adviser service charges.

“Dealer fees would go through the roof,” she said. But if they had their own white label products, they could replace the volume payments with ‘profit sharing’ payments, she added.

Another key development is that dealer groups are considering constructing their own investment products. Baker said this could be in the form of a dealer branded Australian equities pool, where they would have a professional investment manager managing the money and they would control the pool.

“Another model we are starting to see is effectively the same thing in terms of the pool, but where the dealer is working to construct a tailored SMA [separately managed account],” he said.

Baker conceded that these developments were a threat to traditional platform businesses, which he said were currently very busy investing in their equities capabilities.

“The expansion of the SMA space is coming from a low base, but ultimately it is another force after ETFs [exchange-traded funds] and other things that are going on in the industry that will take some traction away from your traditional pooled active fund,” he said.

Researcher Simon Solomon of Plan for Life said there was a lot of money at stake for the large, traditional platform providers. He said some of the large institutions derived between 65 to 70 per cent of their business from their own distribution dealers groups and closely tied dealerships, while the rest of their business was captured through independently-owned dealer groups.

“Some 25 to 30 per cent of the entire retail market has the potential to be moved around without too much difficulty,” Solomon noted.

He also said a large part of the market was increasingly under the control of a few. Solomon asserted that this could be the trigger for independently owned dealer groups that see an opportunity to take a large amount of business for themselves directly, which would improve their margins and enable them to dictate terms without a great deal of opposition.

“There’s an interesting story building there and we’ll probably have to wait to see what happens.”