Funds management fees will drop by up to a third and platform fees by up to half over the next few years as competition in the mezzanine sector of the industry intensifies and the main players seek ever more scale.
This is the view of Jason Yetton, general manager, customer solutions, for BT Financial Group, who presented what he said were the “mega trends” for platforms at the IFSA conference last week. He said that, currently, the total fee for investors through platforms was between 170 and 250bps. This was made up of 60-100bps in funds management fees, 60-80bps in administration fees for the platform provider and 50-70bps for advice. Yetton predicted that, in future, the funds management fee would drop to 40-80bps, the administration fee to 30-40bps but the advice fee was likely to remain largely unchanged. He said there would be more rationalisation among platforms but this was unlikely to occur through acquisition of platforms themselves. Consolidation was more likely to come from “unexpected” quarters, such as through a bank merger or a big information technology company entering the market. There would be further product and system rationalisation, with further progress towards straight through processing, leading to lower cost administration and improvements in processes. Increasingly sophisticated demand would be placed on platforms, which would have to cope with alternative investments, such as long/short investing, and performance fees. Yetton said platform providers would have to be innovative with new products. “I think we’ll see more exclusive offerings of global managers, for instance,” he said, such as the arrangement that Colonial First State has with Acadian Asset Management and BT has with AQR. There would be a “big prize” for the providers which cracked the youth market, which would probably require simple low-cost offerings. Private clients and other high net worths would require more complex services. Separately managed accounts represented the next generation of disaggregation, offering the principles of transparency, tax efficiency and investor control, which were the same principles which drove the developments of wraps in the first place, Yetton said.
Australian super funds’ collaboration with their British counterparts to change the UK policy setting is an engagement effort the first of its kind. However, as the global pension industry and financial markets become increasingly entwined, it certainly won’t be the last. IFM Investors’ David Whiteley outlines its global engagement ambitions on behalf of super funds.
Darcy SongOctober 14, 2024
