Greener Grass?

An unknown fact to many people in the financial services industry is that less than half of all financial planners believe the primary investment administration platform they use is the best available on the market.

Interestingly, 52.7% of advisers think a platform other than their main master trust or wrap is in fact the leading administration vehicle in Australia.

This simple but resonating truth partly explains why the Australian investment platform industry is so unlike many other mature stage markets.

The platform sector is now a very mature market, whereby localised and urban warfare will become increasingly prevalent. The big battles have largely been fought in terms of distribution tie-ups, so it’s now more about house-to-house combat.

Within this, the notion of adviser advocacy is critical whereby recommendations or referrals by planners who use you is how platforms can take a greater share of inflows in such a competitive environment.

Platforms compete head to head against multiple providers in multiple situations across multiple dealer groups and advice practices.

There are more than 20 platforms operating in the superannuation and wealth management market despite the near saturation of planner numbers using master trusts and wraps.

Yet the complexity of institutional owned-distribution and dealer groups deriving income from the platforms their networks use, means advisers don’t necessarily get to access the best on the market.

The grass may not in fact be greener for those planners who believe platforms beyond those they are permitted to offer or are able to access are better, yet the above statistic which was revealed in the latest annual platform study by CoreData suggests all is not perfect in planner land.

In most mature markets whereby choice is decided by consumers (in this case planners), normally only those companies that are able to build scale and offer innovative products and solutions are able to thrive.

This usually means consolidation as smaller and less efficient or attractive producers are swallowed by bigger and more successful companies – business growth in near saturated markets invariably comes at the expense of competitors rather than new customer (planner) acquisition.

Yet in the platform industry the environment tends to be more akin to a war of attrition rather than outright acquisition, whereby platforms seek to attract more of a planner’s new business at the expense of other administrators.

Over the long-term this should increase the ability of the winners to build scale and innovate, while the losers struggle to keep up – even within the confines of the restricted platform market.

With more than half of all planners believing there is a better platform out there, this does not bode well for licensee groups where planners are restricted to platforms they deem inferior.

Particularly given the tough environment we are now in, the use of inefficient or legacy administration vehicles could potentially trigger advisers moving dealer group or even out of the industry completely.

The platform industry’s success is highly correlated with the success of the underlying planning practices channeling client funds through the respective vehicles.

And in the currently environment platforms are facing a double whammy of depressed markets plus reduced client flows from many planning practices.

However the challenge for the platform industry is to help advisers operate as efficiently as possible in these lean times, and this can be done by understanding more about the needs of planners (see breakout box).

With the majority, if not all, of the major distribution networks in Australia ‘tied-up’, new growth is certainly challenging.

Yes, dealer groups do change or add platform providers from time to time, but it’s difficult for platforms to seek organic growth solely through this strategy.

So where are the growth opportunities?

New CoreData research of more than 1,400 planner platform users has identified some interesting findings as to how advisers perceive the different providers and opportunities for growth. Colonial FirstChoice has the highest proportion of advisers who use it as a primary, rating it as best in the industry – with 90.1%.

Next was Macquarie (75.6%), then BT Wrap (68.0%), Asgard eWrap (53.7%) and Navigator (52.9%).

On the flip side what this also suggests is that the reverse order of platforms potentially has the greatest scope for attracting new fund flows over – while other platforms not-mentioned may have an even greater potential.

This is because, using Navigator as an example, of all the advisers who deemed Nagivator the best of breed in the market, only 52.9% of them are currently using it as their primary platform.

Whereas only 9.9% of planners who believe Colonial FirstChoice is the best are not currently using it as their primary platform.

This article appears in the Spring Issue of Master Funds Quarterly