The platform market is expensive and liable to be shaken up by a substitute taking its cues from the more efficient worlds of internet banking or online stockbroking, Russell Investment Group’s new head of investor services, Chris Corneil, told the 2008 Investment Administration Conference.
End-users of platforms were realising that “no alpha pops out the end of these things” and would gradually demand to pay “close to nothing” for the administration of their investments, Corneil said. Based on his own experience as a customer, Corneil observed that the ability to buy, sell or switch investments online was rare in super platforms and only marginally more attainable in non-super vehicles, yet online banking had long allowed customers to deposit and withdraw, switch accounts and ‘pay anybody’.
While the investment platforms rivalled internet banking in terms of their ability to furnish accurate accounting and statements, and their web accessibility, Corneil said internet banking did it all far more cheaply. While he pays $5000 per year for his non-super platform and $2625 a year for his super platform, he gets internet banking for free “because the bank sees some downstream value in me as a customer”.
Corneil compared the cost of reports from Australian platforms with what the likes of Charles Schwab offers in the US, where a detailed investment report for tax return purposes can be had for about US$25. Michael Porter’s ‘Theory of Five Forces’ could provide a clue to the future of platforms, Corneil said. The status quo was in the interests of suppliers (“who spend millions keeping these things up and running”) and advisors (“less paperwork”).
However the rise of fee-for-service and subsequent “de-linking of the value chain”, and an expected lower-return environment, would raise the appetite for new platform entrants to drive down cost, or a new substitution technology. Corneil said that cheap, highly flexible and web-enabled internet banking could provide a clue to what that substitute might be.