Investor worries about financial markets are under control while market return expectations have jumped, writes Recep Peker.
Since 2008, the level of new business written by financial planners has been depressed, reflecting the battering investor sentiment took during the GFC.
However, following the strong performance of the Australian share market in late-2012 and early-2013, Investment Trends found investors’ concern levels with the situation in the financial markets in February had hit their lowest point in 40 months – and their market return expectations had jumped from their 2011/2012 lows.
This ignited the appetite for growth assets among both investors and planners, and new money began flowing to planners again. We saw the level of new inflows written by planners in the last 12 months jump 22 per cent to $5 million in mid-2013.
After hitting a record high in September last year, planners’ flows going into cash and term deposits have finally moved towards growth assets (managed funds and listed investments), which has also been a positive outcome for product and platform providers.
Planners now say they write 76 per cent of new client dollars on platforms, up from 72 per cent last year.
However, these flows are very concentrated. Being an adviser’s ‘most-used’ platform is critical, as primary platforms receive an average of 74 per cent of the total platform flows.
By this measure, the platform market is becoming increasingly concentrated. Ten years ago the top five platforms held 51 per cent of primary planner relationships; they now hold 78 per cent. Much of this has been driven by consolidation in the industry.
Westpac is the largest platform provider by primary planner relationships, with the proportion that uses a Westpac platform the most for new inflows increasing from 10 per cent 10 years ago to 26 per cent as of May 2013. Westpac is followed by CBA, which holds 19 per cent of primary relationships, up from 9 per cent in 2004.
Satisfaction with platforms reached the highest level recorded in the 10 years of Investment Trends’ platform research, surpassing the high that was achieved in 2012. This reflects the benefits of the huge investments in technology by platform providers over the years.
An outcome of this success is that there are now a number of credible, well-serviced platform offerings, so planners now have lots of choice and tend to move if platforms are not living up to their expectations.
Each year about a quarter of planners jump ship, with cost being a key driver of switching. However, having the right functionality and tools, not price, has become the main deciding factor in determining who planners use the most.
Recep Peker is senior investment analyst at Investment Trends and recently spoke at Money Management's Platforms and Wraps conference.
