If money was no object and the industry could fast forward 10 years, no-one would expect a huge departure from a platform’s core function; essentially an adviser’s administration tool. However, in their present day structure, everyone would agree the capability of platforms could be much more inventive.
Platform providers are continuing to invest huge sums of money and resources in developments required for the Future of Financial Advice (FOFA) reforms. The effect on adviser revenue and business models consequently determines the role of the platform as a tool, but the future is radically uncertain for advisers themselves without further clarity.
A five to 10-year time frame is a long way off in the platform world. Technological innovation at rapid speed requires manufacturers to be well ahead of the game and hence the development of the advanced platforms of the future will be contingent on providers’ willingness to invest in the possibilities.
Matrix Planning Solutions managing director Rick Di Cristoforo says what he believes to be the right kind of platform for his dealer group has not been built yet. “As far as platforms of the future, what I see is a platform that’s able to handle multi-assets all in the single registry system and all in the single trading platform or transacting platform,” Di Cristoforo told ifa.
“What I mean by multi-assets is managed funds, exchange-traded funds, managed accounts, direct equities and fixed-interest securities, including bonds and hybrids. It also must have the ability to take on board other assets and get a data feed of pricing for valuation, so basically split its custodial ownership versus its non-custodial ownership.”
He adds that platforms of the future must also allow portfolio construction and management at both the adviser and dealer group level.
Platform possibilities
The shared digital future will significantly impact on all innovation going forward, opening doors to overseas markets and assets traditionally excluded from platforms.
Knowing what to prioritise will be a major issue, although as providers pick out differing strategies they believe are urgent for their advisers and clients, an array of changes will happen simultaneously.
What’s not included on Australian platforms and wraps will be a thing of the past. Broader investment options and asset classes will become a reality, such as international investments, stocks and bonds and different currencies, allowing for international trading, amid client revelations that there are opportunities elsewhere, forcing platforms to move with the times. “It will provide the ability to consolidate a greater range of assets with high levels of sophistication,” netwealth Investments executive director Matt Heine says.
“The core function of a platform is not going to change dramatically in that it will continue to consolidate clients’ wealth across investment, superannuation, debt and risk.
“What we will see is a varied range of new products emerge, and one that continues to make noise but not necessarily gain traction is the managed account space. I think over time that will become a standard feature on most platforms.”
In addition, AMP director of platforms Steve Burgess believes platforms of the future have to become much more than what they are currently if they want to survive. They need to include the support of banking services and products, home loans, other forms of investment such as direct property, and provide extensive tax planning tools in order to fulfil a large part of a client’s tax return automatically from platform content.
“If a client’s got a self-managed superannuation fund (SMSF) or a managed discretionary account (MDA) or something of that nature, then there’s even more assets that could come into a platform from a reporting and tax basis, rather than just the standard cut of managed funds, a few equities and so forth,” Burgess says.
“The capturing of the data and information would be something that you could see a platform being very capable of doing in the near future.”
Nevertheless, platforms are not looking to take over the job of the accountants, but as the roles of advice and accounting converge, technology must also acknowledge and cater to such a shift.
The expansion of platforms delivered under a single interface has its strength in addressing the growing consumer demand for one-stop shops or central portals for major or related life activities.
From a customer perspective, there are countless possibilities for a platform to be the household financial hub, Burgess says. “As a customer, you’d be confident that this would be running your household finances from all angles. It’s a bit hard to see it coming together in the next two to three years, but if you’re looking at five to 10, I’d see that happening,” he says.
Another direction providers can choose to take is down the SMSF path, as most platforms will need to deliver value to new or specific consumer channels.
Colonial First State (CFS) general manager of product and channel development Peter Chun says platforms are looking to remain relevant to SMSFs, given their growth into a significant segment of the superannuation landscape. “The role of platforms is to facilitate how SMSFs can be run effectively. Facilitating the role of the accountant, having data feeds into accounting software and other SMSF software is going to be important. As more customers are going to become SMSF clients, we’re going to continue to invest in functionality and integration with accounting systems,” Chun says.
He says outcome-based investments will become a common offering on platforms in the years ahead, however, CFS’s main area of increased spend and focus is on smartphone and tablet technology as communication and technology evolution drives the ‘mobile-everything’ world. Advisers can expect more intuitive usability, better simplicity and instantaneous access from platforms of the future, he says.
Platform interconnection: planning software
Integration with financial planning software will be key for advice practices in the front and back offices. However, whether tighter integration between platform and planning software occurs emains to be seen.
A big question mark looms over whether planning software providers want to move to transacting and execution, BT Financial Group (BTFG) head of platform product Kelly Power says. “I still think that there is a very big difference between having a platform that has a registry system, execution and equities capability, and planning software that’s more of a CRM (customer relationship management) reporting system,” Power says.
“They’re quite different and there’s space in the industry for both systems, but I absolutely believe that the integration between both systems needs to be improved and enhanced.”
Where planning software and platforms will possibly cross over is around the FOFA-required annual fee disclosure statements and opt-in, however, Heine says there is a misconception in the advice industry that the platform will ultimately administer and manage it on behalf of advisers.
“The reality is that it’s going to be very difficult for us because in most cases we only have a small part of the client’s total financial picture,” he says.
“Where there’s insurances held outside a platform, where they’ve got direct investments, SMSFs or advice relating to non-platform business, we can’t possibly know the total fees that client has paid for a particular year, nor can we manage the opt-in.”
Once the issues are explained to advisers, it becomes apparent the planning software is the most appropriate vehicle to provide the FOFA deliverables.
In addition, planning software integration with platforms is a development advisers are desperate for, however, it will not be easily implemented.
“We’ll see tighter integration as far as account opening from software to platform and potentially more real-time data transfer. As far as transactions from the planning software directly to the platform, we’re still just not sure how that’s going to work,” Heine says.
Delivering cost savings
Over the next five to 10 years, the theme of affordably priced platforms will play out, as the need to deliver cost savings to end investors is critical.
“That will come through more efficient systems, so are platforms looking at more straight through processing online, better client and adviser websites and better integration so that they can deliver those cost savings through to clients?” Power says.
Clients are becoming exceptionally cost-conscious and will only pay for what they use, thus the trend away from a full service wrap towards a needs-based pricing structure is quickly growing, she says.
“If you only have simple needs and only want index funds, then you should only pay for those. If you have more complicated needs, you’ll pay for a full service wrap,” she says.
Heine adds that costs will decrease significantly as a result of successful platforms leveraging new technology and increasing scale.
Will clients pay for a platform of the future?
While significant platform developments are all well and good for advisers, the general population’s willingness to pay for such an offering is unknown.
Burgess suspects clients could point to several free offerings and argue they could do the same job.
“But would it be capable of doing all the complex reporting and tax accounting that a modern platform needs to do within a super or pension fund? I suspect not,” he says.
“My view is that generally people don’t value what they don’t pay for. People will see the value in future platforms and frankly we in the industry, advisers as well, need to explain to clients just how much is involved in administering a complex portfolio and how it actually adds value.”
There’s much scope for advisers to have a better articulated conversation with clients around the value of complex administration, particularly when questioned over how much they’re paying. “It’s in advisers’ interests to make that case, just as it is for ours, in the event that they challenge that price,” Burgess says.
An implication of current platforms is that they remain too restricted to the adviser.
Chun says offering end-client functionality will answer investor demands for access to portfolios and reports, which will also aid in demonstrating value to them.
“We’re starting to develop tools and functionality available to the end client, in conjunction with the role of the planner,” he says.
“We’re not looking to have clients come direct to the platform; it’s to facilitate the role of the planner and how they engage with the client. This is about having richer conversations between the adviser and the client.”
An inverse outlook
OneVue chief executive Connie McKeage says the platform market is and will continue to be a “game of resilience”.
“For the platform providers and the manufacturers, it is one of those environments where you do need to adapt or die,”McKeage says.
Seeing manufacturers stay complacent is worrying amid the seismic changes consumers are influencing across the board.
“The developments in the financial services industry just aren’t keeping up with the changing consumer, who will go elsewhere unless we adapt and adapt quickly,” McKeage says.
A genuine customer-driven advice sector will emerge, set to be more powerful due to the post-FOFA environment, she says, but warns it won’t come without difficulties.
“For us the major challenge is distribution and for advisers it’s their revenue model,” she says.
“Advisers need to work out how to maintain an income and revenue level that matches the pre-FOFA environment without the volume discounts and that’s where they’re struggling because they need to come up with a different operating model.”
The key challenge for platform providers is to look at the world more inversely, rather than only from the advisers’ view, she says.
“We’re looking to grow the advice market by looking at it from a consumer’s perspective. It is going to be about capturing total wealth in a product-agnostic sense that’s actually driven by a relationship between the consumer and, in some ways, their personal choices. It will hopefully increase the amount of limited and full advice,” she says.
“We’ve seen early indication that this is where the customer is going, but there’s a great subset of the market right now that just isn’t choosing to go that way because of the present all or nothing proposition.”
