A managed account provider has revealed that wealth managers are paying far less than they have in previous years for platform providers and administration services as competition intensifies.
At a media lunch in Sydney on Wednesday, Xplore Wealth’s head of distribution and marketing Tony Nejasmic commented on the competitive process that platform providers go through to win business from large wealth managers.
“We do get approached on all types of deals. We have a number going on at the moment. You win deals and you lose deals on a number of things. Sometimes it is price, sometimes it is technology and sometimes it is brand name. Sometimes it is a mixture of those,” he said.
“What we are noticing in the market is a lot of deals being done at really low prices. We just don’t think that’s sustainable. Platforms are buying business. You see in some of the listed platforms their margins are compressing, because the new deals are being done at a much lower rate than the historical deals.
“The problem you have with that is when those historical deals come up for renewal, and a lot of them are on three-year contracts, you’re not getting the same rate you did three years ago. There is a little bit of a race to the bottom on fees for platform providers.”
Last month platform provider Netwealth announced that it had been selected by ANZ to provide its services to ANZ Private. The deal includes a $3 billion FUM opportunity for Netwealth.
Despite price pressures from its competitors, Netwealth maintains that it is continuing to win business. Last year BT Panorama announces significant cuts to its platform pricing.
“Management claim Netwealth is still winning customers despite competitors cutting fees, and that the royal commission into the financial services sector will be a tailwind for the business,” Morningstar analyst Gareth James commented on Netwealth’s December 2018 quarterly business update.
“However, the quarterly update looked a little soft relative to key competitors HUB24 and Praemium, which both reported record inflows for the December quarter, albeit smaller in an absolute sense than Netwealth’s growth,” he said.
Netwealth FUA reached $21.1 billion at 31 March 2019. The group’s managed account net inflows contracted by 8.6 per cent compared to the March 2018 quarter.
Xplore Wealth has $13.3 billion in assets under administration including over $2.6 billion in direct international securities as at 28 February 2019.
HUB24 FUA hit $11.5 billion at 31 March this year after a record March quarter attracting close to $800 million in net inflows.
In its quarterly trading update last month, HUB24 said it is benefiting from advisers transitioning clients from legacy platforms. However, the group noted that a focus on assisted FUA transition activity, which it said involves “in specie transfer of assets”, results in lower initial cash balances on the platform and reduced asset trading.
“This combined with advisers moving clients’ cash into the market as it rebounds, increasing average account balances and the impact of scale-based pricing for a large transition, completed in December 2018, is having an impact on revenue margins.”
HUB24 anticipates its revenue margins to contract by 6 per cent over 2019
“Revenue margins tend to fluctuate with the level of platform trading activity, client cash balances, the level of assisted transitions in the new business mix, as well as cyclical conditions,” the group said.