st1:*{behavior:url(#ieooui) }

/* Style Definitions */
{mso-style-name:”Table Normal”;
mso-padding-alt:0cm 5.4pt 0cm 5.4pt;
font-family:”Times New Roman”;

A flurry of recent
consolidation in the platform market raises questions over the power this new
era of mega-platforms could wield over fund managers. KRISTEN PAECH reports. In the 1990s, US research firm Cerulli Associates
famously predicted there would only be five major platforms in the Australian
market by 2004. While this turned out to be premature, a bout of consolidation
over the last six months has significantly boosted the market share of those
who’ve gone on the offensive, and increased the dominance of the major market

Last year’s merger between Westpac and St George, which brought the BT
Wrap and Asgard platforms together under the Westpac umbrella, marked the start
of what is not so much a trend but a development triggered by external forces. In
April, the Australian Wealth Management and IOOF Holdings merger, including the
Skandia platform business recently purchased by IOOF from Old Mutual Group, was
given the green light by shareholders. And more recently, NAB acquired Aviva Australia’s
wealth management business, counting its life insurance operations and
investment platform, Navigator, for $825 million.

The derailment of the
sharemarket has seen platforms lose nearly one quarter of their funds under
management over the past year; a tough business environment for providers that
rely on asset-based fees. According to statistics from Plan for Life Actuaries,
the total masterfund market, comprising platforms, wraps and master trusts,
fell 19.6 per cent over the year to 31 March, 2009 to stand at $328 billion. Inflows
of $89.3 billion were well down on the previous year’s $148.2 billion, while
outflows of $75.2 billion were also down on the $104.7 billion recorded in the
year to March 2008. Five companies hold more than $10 billion in platform funds
under management, led by Colonial
First State
($32.5 billion) and AMP Financial Services ($27.3 billion), as at July 1 this

And one quarter of Australian financial planners now use the combined BT-Asgard
platforms as their main platform, according to Investment Trends. Investment
Trends’ October 2008 Planner Technology Report, which surveys 1400 advisers,
put Aviva in third position (behind BT and Asgard), based on the number of
adviser relationships, and MLC in sixth position. But post-acquisition, Mark
Johnston, principal of Investment Trends, says the combined MLC-Navigator platforms
should poll second or third overall, depending on the number of adviser relationships
MLC manages to retain.

The figures lend weight to the “bigger is better”
argument often put forward by those on the acquisition trail. “It really does
reshape the markets,” Johnston
says. “Now you’ve got the combined BT-Asgard with the most relationships, you’ve
got CBA – between First Choice, First Wrap and Avanteos – and MLC tied for
second, then quite a large gap back to the remaining players. As expected, it
leads to a lot of concentration and consolidation.” Scale is a definite
advantage for platform providers, providing a larger distribution footprint in
the planner market and hence broader access to superannuation investors.

Rise of the platform oligopo ly But what power will these megaplatforms wield
over funds managers, and do fewer players mean bigger mandates for those who
are successful? Simon Solomon, managing director of Plan for Life, says
consolidation is unlikely to have a huge impact on fund managers while funds
under management remain depleted. He admits that fewer platforms, or a “semi-monopoly”,
is more likely to see fund managers squeezed on fees than a highly competitive
market, but says the sharemarket wipe-out has left little room for
negotiations. “If you end up with fewer platforms, you end up with a
semi-monopoly where five or six platforms can basically call the shots and
there’s not much anybody can do about it,” he says.

“But where you’ve got 30 or
40 of them and there’s competition, the ones that are charging more have to
keep looking over their shoulder to make sure they’re not losing funds to the
more economical ones. “Bear in mind though [fund managers] have lost 30 to 40
per cent of the funds they had 18 months ago, so they’ve got a fair way to go
before they even get back to square one. So to be offering any discounts at
this stage would be more difficult for them to do, because they’ve lost a great
deal of their margin and they have to try to get back there and hope that the
market recovers in a reasonably short time.

Any further discounting is not
going to happen in the short term.” In the long term, however, Johnston from Investment Trends believes the growing
scale of platforms gives them more power to negotiate lower fees from the fund
managers, and potentially reduce fees for investors. “Gaining scale can
potentially gives you more scope to cut fees, which can be important when there
is a lot of downward pressure on fees across the industry,” he says. On the
flip side, Craig Lawrenson, national manager, product and strategy at BT Wrap
argues consolidation offers benefits for fund managers, since they can have
fewer relationships whilst targeting a broader market.

“A good example
internally at BT is post the acquisition of Asgard, we moved to a single fund
manager governance unit, so we can have a single unit servicing fund managers
that can then offer the distribution power behind our business through that
single relationship,” he says. “It certainly adds efficiency to the process and
allows fund managers to have a smaller number of relationships delivering to a
larger audience.” As an open architecture platform, BT Wrap offers more than
600 funds to investors, but does not pre-package products or hand out mandates
to funds managers. MLC, on the other hand, through its multi-manager investment
process, awards mandates to managers who sit on its MasterKey and MasterKey Custom

In theory, as platforms grow, the slice of the pie available to fund
managers via mandates increases, however Michael Clancy, general manager,
investment management division at MLC, says assets on MLC’s platforms are widely
distributed, with the exception of MasterKey. “MasterKey has had mandates in excess
of $1 billion for many years now, and that has nothing to do with
consolidation,” he says. “Those [funds managers] with a competitive edge will
be able to command whatever price they want. But in every market there are
benefits of acquiring services at a large scale. As platforms become larger
they can negotiate an attractive fee, at least for the incremental dollar.” Insurance to be next battleground.

A possible by-product of consolidation, particularly
where life companies like Aviva are brought into the mix, is the proliferation
of risk insurance products on platforms. “Because more of this business is now
transacted with a fair amount of involvement of life companies, we’ll probably
see more products becoming available on the platforms. For example risk
insurance, which does exist in a lot of these platforms but not to any great extent,
could be pushed a lot harder,” Solomon says. “So we could see a lot more
variety occurring, not just investment options but insurance options of various

Solomon says industry funds, which in a sense are platforms as well, have
“already got a march on the retail platforms” when it comes to insurance, with
many having expanded and improved the type of products available and increased
the amount of cover being offered. According to Plan for Life, industry funds’
group life in-force annual premiums totalled $923.13 million as at 30 June,
2008, up from $732.85 million the previous year and $579.88 million in 2006. In
comparison, group life in-force annual premiums into platforms and master funds
totalled $495.48 million (corporate) as at 30 June, 2008 and $626.58 million
(personal), up from $478.43 million and $496.58 million respectively the
previous year.

Lawrenson says BT is making some improvements to its insurance
offerings through the wrap platform as part of a three-pronged approach to
improving functionality and efficiency, which also includes improvements to its
direct equity capability and ensuring compatibility of the Wrap system data
with the software used by accountants on behalf of self-managed super fund

The mere presence of industry funds, and the deepening of their product
offerings, should be enough to maintain healthy competition in the platform
market, even if consolidation in the sector continues apace. “The average
account in the industry funds is about $10,000 whereas retail funds it’s more
like $50,000 or $60,000,” Solomon says. “But with more growth in those funds,
if they don’t change that formula, then they do become quite a threat to the
retailers. Along the track that will push the retailers much harder into reducing
their fees, certainly some of those upfront fees; the 1 per cent [entry] fee is
the most vulnerable.”


Join the discussion