The evolution of Australia’s platform sector has left the country’s wealth market facing a “quantum shift” over the next five to 10 years, an industry consultant has said.
Hunts’ Group senior consultant Wayne Wilson said the previous level of scale at each part of the value chain has changed and new levels are going to alter the way the market looks and acts.
“At each level, the relativities will mean the participants will need to change their thinking and their business model if they are going to remain competitive,” Wilson told delegates at yesterday’s annual Wraps, Platforms and Masterfunds conference on the Sunshine Coast.
He said in terms of the big four banks and AMP/Axa, the predicted focus for them will be on scale and distribution.
“The new scale is going to be $200 billion to $300 billion, and the key in the future is to try and have it on not just one operating system, but on numerous [systems]. Scale means that cost as a percentage of revenue and profit can be spread and profit protected as platforms face ever increasing pressure on margins from consumers,” he said.
“Margin is likely to be under serious threat as forecast weak markets and lower returns expose the impact of the administration cost on returns. I’m sure that in the foreseeable future, consumers are not likely to quibble about paying 20 to 30 basis points for the services of a platform that, today, virtually no one is paying.”
In order to achieve scale and manage margins, Wilson said the big five will focus on the needs of their own distribution, creating potential risk to independent financial planners.
He said the government’s Future of Financial Advice (FOFA) is also going to create challenges for the sector.
“Many advisers are yet to rebuild their practices because they are opting to wait and see the final impact of FOFA before entertaining, renovating the business strategy and addressing the issues. This is going to be an ever increasing change-management issue for the big five and their institutionally owned licensees, as well as for independents,” he said.
He said FOFA, depending on the outcome, could deliver many problems for platforms, including the possibility of a dual-fee environment, significant changes to the legacy system, and the potential for “retarding” the development of new functionality within the sector.
Wilson also said in light of reform changes, it would be incorrect to suggest consolidation within the market has ended.
“There are some big players that are still catching up, and size doesn’t necessarily mean capability in at least two cases with the big five,” he said.
“Control of and size of distribution is paramount to build scale among the big five, so you can expect more to take place in this area in the next five years. This demand for distribution is what has been keeping an unofficial floor under financial planning business valuations, and the GFC [global financial crisis] and FOFA should have been driving them down.”
