MLC Wealth, the advice and wealth management business carved out of National Australia Bank, will make significant cuts to fees on its investment platforms.
The business, led by former Perpetual chief executive Geoff Lloyd, which is understood to be preparing either for a sale or an initial public offering, will announce fee reductions today, which in some cases will cut in half administration costs currently charged to end customers.
The new pricing on the company’s Wrap Series 2 platforms will be made effective on the Monday following the Friday February 1 scheduled release of the final Hayne royal commission recommendations. Changes to its MasterKey Super and Pension Fundamentals product pricing will be effective from April 1.
While headline numbers in MLC Wealth’s announcement today suggest approximately 200,000 clients estimated to be invested via MLC’s platforms will benefit from a reduction in admin costs, the announcement also importantly represents a significant shift in way the major platforms plan to work with dealer groups and licensees in the future as they bring wholesale pricing to end investors.
Shifting value
The announcement by Westpac-owned wealth business BT last July to cut the admin costs associated with its Panorama platform was rebuke to the existing pricing arrangements it had struck with licensees in the past.
The new 0.15 per cent per annum admin fees for MLC’s retail Wrap Series 2 for balances between $200,000 and $500,000 appear to be along the same lines as the Panorama pricing.
MLC Wealth will no longer offer volume discounts at the licensee/dealer group level under this new pricing, Sam Wall, the company’s General Manager of Product and Platforms, confirmed to Professional Planner.
“The reality is that there are many pricing structures in the market that don’t provide benefits to all clients. Our pricing structure is [now] flat, transparent and has no select pricing deals attached to it. We think this is the direction the industry will be heading to in the future,” Wall said.
“Today’s announcement is one of the biggest fee reductions ever undertaken by MLC Wealth, and signifies the beginning of a new chapter for the business as we work to deliver products and services that are more transparent and affordable to our clients,” MLC Wealth CEO Geoff Lloyd said in a statement.
Regulators, policy makers and consumers have put the industry’s fees and its conflicts of interest under intense scrutiny following a year of investigations and revelations in 2018 which led to significant findings and recommendations delivered by the Productivity Commission and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The decision by BT and subsequently by MLC Wealth to significantly reduce administration costs also comes at a time when new entrants including HUB24 and Netwealth have been experiencing accelerated fund flows while their larger incumbent competitors have recently been experiencing outflows from their platforms.
Comparisons are difficult
Finding an ‘apples vs apples’ comparison of platform pricing is near impossible because of the different ways platforms charge fees and the different bands of funds under advice the providers use to tier pricing.
The complexity of platform pricing has made it difficult for end investors to ascribe a cost to administration, which has in turn made it difficult for investment managers and advisers to independently price their offerings.
The varying interest rates platforms charge on client cash accounts is one such example of how costs are hidden in administration – BT’s Panorama for instance pays a 0.5 per cent per annum interest rate on its working cash account while AMP’s MyNorth Choice platform pays above cash rate 1.57 per cent on its working cash accounts, recent Chant West research reveals.
In its latest announcement, MLC Wealth noted that it had made the decision to increase the interest paid on its Wrap Cash Accounts last October by up to 0.75 per cent a year and by 0.48 per cent on its Cash Fund accounts a year throughout the year.
Further pricing changes announced by MLC Wealth today included a reduction of admin fees on its retail MasterKey Super and Pension Fundamentals for balance between $200,000 and $800,000 by up to 0.25 per cent per annum starting in April.
Meanwhile, on its retail Wrap Series 2 platforms, fees for balances above $500,000 will be cut 40 per cent to 0.03 per cent per annum, the company said. Further, the company said that clients with up to four family members will be treated as one group, and annual administration fees will be capped at a maximum of $3,600 per superannuation family group and $3,000 per investment group.
More to come
The significant changes to the pricing associated with MLC’s platforms are expected to be a prelude to further announcements in coming months as MLC Wealth’s Lloyd gets closer to outlining his strategy for the future of the business.
Lloyd said he has been working with MLC Wealth’s leadership team to modernise and improve its business for the benefit of our clients since he was appointed to the CEO role in September last year. He added that the pricing changes announced today represent one of those reforms.
‘’Over the next 12 months, we will be implementing a number of initiatives across the business to ensure our clients have access to competitive fees, and our products and services are meeting their changing needs,” he said in a statement.
It is understood that Lloyd will look to float MLC Wealth on the Australian Stock Exchange this year; it is possible this process could also lead to the exploration of alternative options including a possible sale although the company has not said this officially.
A potential IPO of MLC Wealth will likely come with stiff challenges given the perceived and real regulatory risk attached to these businesses, not to mention the investor skepticism around profitability in a post Hayne royal commission world.
