The fragmentation of the wealth sector continues to cause disruption in the industry, providing challenges and opportunities alike for incumbents and new players. One key area undergoing transformation is that of investment platforms, where the traditional market leaders are facing pressure from newer platform offerings. More recent additions to the market have proved popular due to their agility and dynamism in being able to fill operational and administrative gaps that were being unmet. However, size and scale may yet prove to be key assets that could maintain the traditional market dominance in this platform space.
In recent years, industry fragmentation has been driving advisers to migrate from the Big 6 into and between privately owned licensees. This in turn is driving the transition from incumbent bank-owned investment platforms to many of the new and smaller platforms. Our soon to be updated research from last year’s Advice Landscape report, showed that the Net Promoter Score (NPS) for most of the Big 6 platforms varied between -20 and -56 when their aligned advisers were removed from the feedback. That meant many advisers were far from happy with both the product and service they were receiving, and they were happy to canvass other options.
With decreasing numbers of aligned advisers industry wide, most believe this dynamic will mean the investment platform market will become more open - as advisers move away from the institutions, more will be free to use the platform of their choosing – but there will be further changes and challenges ahead for both traditional and newer players.
“NPS was horrible for most of the Big 6 platforms, varying between -20 and -56 when their aligned advisers were removed from the feedback.”
The new players offered flexibility, customisation, contemporary technology, and speed to rollout. They are also trying to be highly responsive to the smaller practices and licensees they are partnering with to meet their desires for more flexible approved product lists, managed accounts, and for improved clients interfaces – the last area is one where most established platforms fail miserably. Differentiation between platforms in the last few years has been on functionality and customer service to advisers, but price has more recently been added to the mix. Platforms are now competing on fees, with some widely signalled front-line discounts being offered. There has however been wide-spread criticism of cash rates offered to clients as not being competitive, and in fact simply a means of platforms holding onto margin while giving some away through lower fees. Further rate cuts by RBA will likely expose this strategy.
So far, we’ve re-capped where the industry is at, but what lies ahead in the platform space? Legislative changes will have an impact - platforms are captured by the new Design & Distribution Obligations Act (DDO) where they double as super fund trustees or offer D2C services like robo-investing. The DDO Act will require them to take more responsibility for how their products are placed with consumers either directly or through intermediaries like financial advisers, including doing more work on identifying ideal clients through target market determinations. This may lead to more onerous due diligence and surveillance requirements for platforms working with advice practices / licensees.
New entrants like WealthO2 and Spitfire Corporation will have to be able to meet these regulatory demands prior to being well established, so this could benefit the platforms that already enjoy market share and relationships with advisers. Concurrently, some established platforms are attempting to shore up their position and expand through new third-party adviser growth strategies.
What other new platforms will emerge and what are they going to look like? One possibility is new custom versions from the major bank-owned platforms positioned with separate branding, pitched at different prices points, and targeting specific cohorts.
Competitive pressures that were missing when the larger scale providers could simply rely on a funnel of aligned advisers using their service have kicked the traditional players into action, and they are keen to emphasise their scale and the advantages their size affords them in terms of rigour and efficiency – something they believe some new entrants can’t compete with. The opposing argument is that smaller providers can provide benefits from a more focused, “individualised” offering and greater agility through more contemporary technology.
It will be interesting to see whether longer-term the lack of market scale and funding enjoyed by the bank-owned platforms is a critical factor for newer players, however the question remains what are their financial objectives and how well placed are they to compete according to their definition of success? A very specific, niche offering may not equate to massive market share, but it could provide a stable platform for future growth of a similar model. Fragmentation leads to specialisation, and this is a dynamic many in our industry adhere to. With advisers narrowing the list of technology providers they are partnering with, those that offer choice and create adviser efficiencies at a competitive price point would look to be best placed as adviser’s choice of platform.