“So if one looked at it from a consumer’s perspective, the platform industry has not done a great job in passing cost reductions back to consumers. They haven’t kept up with the changes taking place in technology and they’re maintaining the highest possible margin they can. Therefore growth in platforms isn’t terrific.” In a FoFA world where clients are more cost-conscious, platforms could lose some of their clout as advisers strive to deliver fee savings, he said. “It’s now accepted that platform costs are high, if not outrageous relative to the rest of the world,” Knox said. Bignill agreed. He said wrap platforms are very expensive for what end-investors receive in return, and that cheaper alternatives will be sought. “I don’t know that many clients are walking into financial planning offices and saying: ‘Look, that’s it, I’ve had it with managed funds. What else is there?’ I think they’re now starting the conversation with: ‘How much am I paying? Is this 3 per cent before I’ve got any outperformance?’ “That’s where the change is coming from. It will definitely evolve but I think it’s all starting around fees.” Now that FoFA has eliminated volume-bonuses to dealer groups, investors may now determine whether platforms are as attractive as they once were. “You know that the cost structure is pregnant with an extra 40 basis points, which is twice the price it should be,” Knox said. “Now a managed account can halve that cost base.” Ca nnibalism : the last resort The latest entrant into the platform market, simpleWRAP, delivers a single, flat administration fee – regardless of the amount invested – to the Australian market for the first time. The customary basis point fee has been scrapped, as well as any form of hidden rebate or volume bonus. Krystyna Weston, managing director of simpleWRAP, believed this pricing structure beats those of individually managed accounts (IMAs) and separately managed accounts (SMAs).

She said managed accounts are attracting interest for a good reason – platforms are expensive – and this supports the case for simpleWRAP. “Platforms charge basis points. That’s how the whole industry has grown up. “But at a simplistic level, you look at it and ask: why? Particularly when the cost of delivering the service is pretty much the same, client-by-client.” “The base cost of administering a portfolio in a wrap is the same, regardless of the amount of money involved, yet platforms are charging investors with larger accounts thousands of dollars and investors with smaller amounts a lot less. And in their world, they’re cross-subsidising the cost of each. “First of all, that’s not very equitable,” she said. “With all the changes that are going on in the industry, there’s a real opportunity to revolutionise the approach to fees so that an investor will pay only one flat administration – fee irrespective of the size of their investment – and offering them potentially significant savings where they’ve got large account balances.” The new wrap offers a flat administration fee – $125 a month, which is ideal for investors with an account balance of $200,000 or more – as no underlying “cannibalisation issues” of customer equity exist. “The larger platforms have been built upon a particular business model and for them to offer a flat fee, they would cannibalise their profit margin effectively, which makes it a very difficult business decision for them.” “They could switch to a single admin fee, but I suspect they would have a dramatic decrease in shareholder value because of the way the business model has grown up.”