Platform profits could plummet by more than 30 per cent for major wealth managers, UBS has predicted, citing corroding foundations of vertical integration as independent and contemporary players rise up.
The report by analysts Kieren Chidgey, James Coghill, Wilson Nghe and Olivia Clemson said major platforms are shedding funds under administration (FUA) at an increasing rate, with advisers opting for their contemporary counterparts.
“Successive recent admin fee cuts from the major providers are in our view a band aid solution – they may ease outflows; however, these moves could ultimately exacerbate legacy/contemporary shifts and revenue pressure,” UBS analysts noted.
The investment bank also believes with retail super in net outflow and major platforms shedding market share to speciality platforms providers, combined fee and FUA impacts could see revenues fall 25 per cent over five years.
Even if major wealth managers undertake radical cut costs by 20 per cent over the next five years, the investment manager still expects platform earnings to decline.
UBS has forecast lower earnings for AMP and IOOF as a result.
The analysis expects major platforms to redouble cost control efforts by consolidating and upgrading systems.
“Our review of royal commission cost data suggests the prize from consolidating legacy platforms could be limited with benefits likely to lag revenue compression,” UBS said.
It also noted recent fee cuts suggest contemporary pricing could head 30 basis points lower over the next five years. Overall admin fees, UBS added, could drop 40 per cent from current levels.
“If contemporary fees fell to 25bps and cost-out remains at 20 per cent, profit declines could jump to over 60 per cent,” UBS said.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
Sarah has a dual bachelor's degree in science and journalism from the University of Queensland.
You can contact her on [email protected].
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