Riding the cycle – the changing face of platforms

Mike Taylor writes that astute riding of the regulatory cycle combined with an acute understanding of adviser needs has helped reshape the Australian platform market.

The agile use of technology, the absence of legacy systems and changes to the underlying regulatory environment sits at the heart of what has changed the Australian financial services platform market over the past half-decade.

As Money Management kicks off another Fintech, Platforms and Wraps Conference, an undeniable change has become cemented in the market – the platforms and wraps space is no longer the sole domain of the major institutional players such as Colonial First State (CFS), BT, Macquarie or even IOOF.

According to the 'Investment Trends 2017 Planner Technology Report’, CFS First Choice and BT Wrap may remain the most widely-used platforms among planners, but it is the relative minnows in the form of Netwealth and HUB24 which top the polls in terms of client satisfaction.

And what the Investment Trends research also made very clear is that satisfaction matters in a market where the vast majority of planners (75 per cent) say they are open to switching their primary platform.

In an environment where the senior executives running the platform businesses for the major institutions are subject to key performance indictors (KPIs) based on the findings of companies, like Investments Trends and Wealth Insights, the reasons behind the rise and rise of Netwealth and HUB24 is not something they take lightly.

HUB24 chief executive, Andrew Alcock is pleased with his firm’s growth in the platform space but makes clear that standing still is not an option and that not only do platform providers need to stay abreast of the latest technology developments but also the needs of financial planners in reaching their clients.

He sees technology as a means to an end, rather than an end in itself.

“If we as an industry can engage clients in new and better ways of using technology we can change the game,” he said.

“We can see that already with retirees who have never had an e-mail or a computer now checking their account balances. If we can efficiently attract accumulation clients at younger ages and lower balances and use technology to get engagement and grow the clients of tomorrow that will change the game,” Alcock said.

Alcock, who took up his role at HUB24 in 2013 after being integral to the growth of managed accounts, said he believed there remained considerable opportunities in the platform space which defied past notions of consolidation and the dominance of a few institutionally-backed large-scale players.

He said technology had certainly been a game-changer, but so too had been the regulatory changes which had impacted the industry over recent years not least the future of financial advice (FOFA) changes.

Alcock said these two factors combined had lowered the cost of operation which had, in turn, reduced the need for scale.

“If you don’t have technology and agility you can’t respond to client needs and innovate then scale is put at risk and that impacts profitability,” he said. “However the need for institutional scale is questionable and the proof of that is the success of newer players who have enough scale to deliver robustness and stability with an agile technology approach.”

BT Financial Group’s head of platforms, Kelly Power said that technology had undoubtedly played a significant role, but it was essential that platform providers had the necessary capability to sit behind their product.

“Technology is great – but you have to have capability sitting behind it to make it work.”

“There have been an increasing number of new entrants with various levels of success in gaining traction and challenging the incumbents,” she said. “I welcome it. New entrants drive innovation and make us all better.”

Colonial First State’s Peter Chun acknowledges that the platform market has not evolved in a manner he expected with consolidation having failed to eventuate.

However he said he was pleased that CFS had had the foresight to strongly back the independent financial adviser (IFA) market despite some predictions of its demise.

“The IFA segment has been incredibly resilient and has responded well to the post-FOFA environment,” he said.

Netwealth joint managing director, Matt Heine agreed that technology and the manner in which it has been deployed has been a game-changer and has helped loosen the grip of the major institutions in the platform space.

“The institutions have been fortunate to have big brands, large tied distribution forces and narrow approved product lists (APLs) which has driven growth but not required continued innovation or ongoing platform development to maintain or grow market share,” he said.

“Netwealth on the other hand has been focused on the IFA, private client and high net worth [HNW] segment who not only have wide ranging business models but also have choice – e.g. they will work with the platform they perceive to be the best fit on the day and can leave if no longer satisfied.”

“Developing flexible and robust technology in an agile way that meets our customers’ needs has therefore become a survival mechanism in addition to a core value,” Heine said.

While little more than half a decade ago many observers were asserting that the platforms market had become too expensive to permit the entry of new layers, technology has acted as the major change agent.

AMP Limited director, superannuation retirement and investments, Vicki Doyle echoed Chun’s sentiments about the value of scale for large wealth managers with capital and infrastructure being hugely beneficial to their customers and businesses.

“Technology is changing so fast that ongoing capital and investment will be required to continuously innovate and stay at the forefront of the customer experience,” she said. “This relates not only to how advisers and customers interact with us, but investing to ensure that appropriate governance practices are in place to protect the interests of customers.” 

“Integration with a large wealth manager also allows our platforms to benefit from the enterprise-wide investments in complementary technology and customer offerings. We see our platforms as forming part of whole of wealth, goals-based customer solutions,” Doyle said.

But Alcock argues that technology alone is not the answer and suggests that, to some degree, HUB24 and Netwealth have been beneficiaries of a cycle of change which has included FOFA, the evolution of managed accounts and other elements of regulatory change.

“HUB24 was around at the start of that wave,” he said. “[It would be] much harder now.”

“But never say never, if players don’t provide value then they place themselves at risk to new entrants,” Alcock said. “I think scale is important but you have to take opportunities when they arise. Those who have done that have placed themselves in a very strong position.”

Heine also acknowledged the impact of the regulatory cycle but said that having moved through that period, the focus is now on platform development.

“Whilst Netwealth has maintained a focus on innovation and delivering new features over the last five years there was a period during and post 2013 where the platform market was ‘distracted’ by wide-ranging reform and the need to assist advisers with FOFA based functionality,” he said. “With this behind the industry, and super changes aside, there has been a renewed focus on platform development and significant improvements to the range of solutions and investment vehicles offered, the online user experience for advisers and major enhancements to client portals across the board.

“There is no doubt however that the most significant change has been the introduction and integration of managed accounts,” Heine said.

On the question of new entrants, Heine and Alcock agreed that their businesses could not afford to take their eye off the ball.

Heine said the biggest risk was becoming complacent and ignoring the rapid change both from a technology perspective but also industry dynamics.

“There is no doubt the barriers to entry are getting higher and harder to meet however with the advent of new technologies such as blockchain, artificial intelligence [AI] and the increased connection of various systems and services via APIs we need to maintain a close eye on fringe offerings and adopt or evolve,” he said.

“I see an incredibly bright future for platforms and I am increasingly excited and optimistic about the opportunities but also believe that our platform and others will look very different in the next five to 10 years.”
CFS’ Chun said he was not surprised by the growth of Netwealth and HUB24 but disagreed that their emergence signalled that technology and agility had overcome the need for institutional scale.

“They are simply at a different point in the growth cycle compared to larger institutions. While some smaller platforms may have a perceived agility with their IT development, scale is critical because it’s built on established customer bases and distribution reach. Scale ultimately drives service levels, efficiency and importantly, sustainably lower costs for clients,” he said. 

“Scale also allows the larger institutional players to continue to invest, develop and innovate with the backing and support of a strong parent while enabling the platform provider to invest heavily against cyber security threats – something which is becoming increasingly a critical issue in financial services,” Chun said.

Panorama – the elephant in the room

Westpac/BT’s roll-out of its Panorama platform represents the biggest single investment in the platform market in the past half-decade and one which has caught the attention of all the players.

Netwealth’s Heine and HUB24’s Alcock make it clear that they are keeping a keen eye on the Panorama roll-out but are not letting it distract from their own platform development strategies.

Alcock said he saw Panorama as positive and noted that one of the benefits it had delivered to Westpac/BT was the removal of technology legacy issues.

“It is positive that Westpac saw a need to invest in this industry – Australia has one of largest pension pools but as within any investment you need to understand your strategy and approach,” Alcock said.

He said that, like Panorama, HUB24 had no legacy issues: “I’m happy they’re investing and they’ll just have to assess the success of that investment over time”.

Westpac’s Kelly Power said the big banking group’s decision to pursue a major strategy such as Panorama had been driven in part by its recognition of the fast-moving evolution of the platforms space.

“We recognised the potential of the market to evolve quickly,” she said. “[That was] one of the drivers many years ago for the investment decision in BT Panorama.”

“We’ve seen significant transformation in such a short space of time as platforms have evolved to keep ahead of significant technological developments, changing customer and adviser needs and expectations, increased regulations, new investment product options, demographic changes and changes in the competitive landscape.”

“What has been most exciting is the way digital innovation has been embraced delivering value and productivity to platform users. The functionality today is unrecognisable from just five years ago, for instance we have seen adviser log-ins up 87 per cent on the Panorama app, showing advisers are maximising the opportunity to service clients via the mobile.”

“Competition has driven improved features, functionality and lower fees which is great for our advisers and end customers,” Power said.

“If there is any message to send out on Panorama it is that we have strong confidence in the strength and future of this industry and are committed to supporting advisers in delivering their advice to customers. We have invested to ensure we remain significant – offering innovative and market leading functionality to investors and advisers.”

“BT Panorama sets us up for years to come. The scale of the investment is commensurate with the size of our business, we are the largest platform provider in the industry, with more than $140 billion in super and platform funds under administration.”

Heine is circumspect in his view of Panorama but acknowledged that its development and roll-out meant it was important that Netwealth continued to invest heavily into its own platform, staff, and service.

“The biggest risk to return on investment [ROI] is the continued focus on fees where there is an expectation that platforms will continue to innovate and deliver significant adviser efficiency at lower and lower prices,” he said.

“Whilst there is no doubt price is important and should be competitive and provide “fair value”, a race to the bottom benefits no one and I have seen too many good practices make poor decisions based on price which ultimately hampers their ability to grow, increase their profitability, and/or provide great engaging services to their clients,” Heine said.

Technology – what is the next game-changer

Everyone knows they can’t take their eye off financial technology development, but no one is certain when the next game-changer will actually arrive or what it will look like.

That is why the smaller players such as Netwealth and HUB24 continue to adhere to their highly successful open architecture approach, while the institutional players such as Colonial First State, BT and Macquarie remain ready to invest strategically.

HUB24’s Alcock insists that open architecture is the key.

“If you don’t have open architecture where you can take components off and on, then you are really limiting yourself,” he said. “At HUB24 we’re building our technology in a way that means we can use multiple front ends and that definitely changes the game,” he said.

Netwealth’s Heine takes a similar view and makes clear that he is staying abreast of evolving technologies and product sets to ensure the company’s platform keeps pace with advisers’ needs and expectations.

In doing so, he points to the maturity and continued development of managed accounts and “automated investment services”, the advent of new technologies such as blockchain, AI, and the increased connection of various systems and services via APIs.

He said it was things like this which would individually and in combination serve to “change the game” and ensure that platforms evolved and provide new and interesting ways to deliver wealth solutions and to see wealth differently.

On the question of technology, BT’s Power points to the number of technologies that are paving the way for change.

“Across the value chain there are many technologies and developments that have game-changing potential,” she said, citing a number of examples.

“The sharing economy (or ‘peer to peer exchange’) will undoubtedly reach financial services in the near future, whereby information technology will enable efficient matches between providers of capital and end users (as has already occurred with cars, taxis and holiday accommodation),” Power said.

“Robotics, artificial intelligence, and machine learning – over time, these technologies will be able to perform not only more tasks, but more complex tasks and will become increasingly powerful, with endless possible applications.”

Power also pointed to blockchain technology, in circumstances where many of the early technical barriers to widespread adoption were being overcome (e.g. scalability, confidentiality of data).

“New applications are being developed/commercialised that will impact retail funds management in future,” she said.

The story of North

When AMP Limited acquired AXA Asia Pacific’s North Platform few doubted that it would be a success story, if only because of the scale of AMP’s distribution network.

The degree to which this assessment has proven correct was confirmed by Doyle who said North had confirmed the degree to which platforms had continued their evolution as essential wealth management tools for advisers and customers.

“Evidence of this is the rapid growth they’ve experienced, including AMP’s North platform which recently exceeded $30 billion in assets under management,” she said, noting that in 2016 North’s customer numbers increased by 28 per cent and its assets under management (AUM) grew by almost 30 per cent. 

Like Chun and Power, Doyle noted that as demand had grown, platform consolidation had not progressed across the industry as fast as might have been expected over the past five years.

She said costs and competing priorities, in particular those relating to considerable regulatory change across the industry, had contributed to this.

“We expect that providers are now moving faster to both consolidate and simplify their offerings which will in turn drive the scale and efficiencies that platforms can provide customers and advisers,” Doyle said.

Looking at the particular situation with respect to North, Doyle said high quality platforms were a compelling proposition for advisers and customers because they were great for investment administration, record-keeping, at scale based processing and driving efficient methods of managing broad investment portfolios.

“We are investing in our platforms to ensure they deliver these core services in the most cost efficient and contemporary way, and in such a way that they integrate seamlessly with the customer advice experience and our enterprise-wide goals-based approach,” she said. 

“So far this year we’ve announced a number of enhancements to MyNorth, including fee reductions for customers and their families, and improved the technology interface and reporting functionality.

“We are also building an integrated separately-managed account capability on the North platform which will cover super, pensions and investments. And we’ll be introducing optimisation for capital gains tax management, together with a range of new adviser productivity features.”

Money Management will hold the FinTech Platforms & Wraps Conference from 2-4 August, 2017 at the RACV Royal Pines Resort, Gold Coast.