FOFA creates new playing field for platforms

A Money Management roundtable has revealed the degree to which the Future of Financial Advice has changed the dynamics of the platform industry and the degree to which this is generating different approaches across the industry and between platform providers.

Mike Taylor, managing editor, Money Management: Well, thank you ladies and gentlemen.

Today’s subject as you know is the platform market in Australia as it currently stands, and I thought we would deal with the elephant that’s been in the room for a large part of this year, and that is the manner in which there is so much competition for large planning groups by some of the major platform owners.

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I can only assume that’s to get plenty of flows onto those platforms.

So Kelly, as one of the larger platform owners, I thought I’d start with you. What’s your take on the need for planners to be the major part of the equation in terms of generating flows to platforms?

Kelly Power, head of platform products, BT: I think that definitely having access to that distribution, and having that distribution supporting your platform, is an important part of obviously getting flows onto the platform, but also being able to continue to reinvest and ensure that your platform is relevant.

I think equally though, a focus on end consumers is really important – and on accountants and on self-managed super funds – so I think what you’ll see over time is that platforms are starting to adjust and evolve, and starting to ensure that their value proposition cuts across different parts of the value chain.

So in the immediate term, absolutely, planners are driving all of the business on to platforms, and they are predominantly the ones that are making the decision to use platforms.

But I think over time that dynamic will start to change.

Connie McKeage, chief executive officer, OneVue: Yes, I agree with you there. I think that historically the intermediated market has been a very bundled market.

It’s been a little bit of all or nothing, where you have some of the insurance advice off to the side perhaps.

But now I think the consumer is definitely taking more control over when, if and how they use the planning sector and the intermediated market.

But I don’t think it’s unique to financial services.

I just think that we’re seeing a disintermediated space, whether it’s the publishing market or whether it’s the financial services market, and really it has shifted quite a lot to the consumer now being more in control, but I don’t think in any way it necessarily means the demise or even the deterioration of the intermediated market.

I just think that it’s a new type of growth and much more aligned with limited advice

than necessarily a full advice at every opportunity.

Mike Taylor, Money Management: Renato, what’s your take on that?

Renato Mota, general manager distribution, IOOF: Look, I think certainly there is an inextricable link between platforms and advisers.

I mean the essence for platform came about through providing a service, a back-office service for advisers, and I think that link remains there today.

I think [the Future of Financial Advice reforms], and a lot of the uncertainty that still remains today, has meant that advisory groups have looked to protect their business and future-proof their business, and in a lot of cases that has meant aligning to a Big Brother, for lack of a better term.

I think that there’s acknowledgement of the value in scale, not only just in platforms, but general advisory services and their businesses.

That said, I don’t think it’s a one-size-fits-all. I think it’s in the market’s interests to have a number of different business models, be it aligned to big groups, or be it completely independent, but I think that the gravitation of some of these dealer groups towards platform providers is more about their need to have a broader set of services rather than just a platform.

Tony Graham, executive director, Macquarie: I think an interesting phenomenon is still platform choice in some of the larger groups – you know, the perception of independence.

We’re seeing from our perspective that large dealer groups are still offering a choice of platforms, not necessarily a wide array but definitely one or two, which I think can help provide opportunities across that big space.

I think the other interesting one though is that where we’re getting advisers coming to us wanting to explore more of that, can we provide more end user capability, can the end user do more with the adviser being able to see that?

So, I agree with Connie that there’s an interesting trend that’s evolving over the medium term, where end clients will do more in conjunction with the adviser, and I think platforms will need to think about how they adapt to that.

Mike Taylor, Money Management: Ian Knox, you come at it from a slightly different perspective, albeit that you’ve got some background in platform.

Ian Knox, chief executive officer, Paragem: I do. My observation is [it’s] getting a bit messy, isn’t it?

You really start to see an industry that has historically focused [on] a business to business model suddenly realising that the party’s over.

And to keep fuelling the party it’s best to get into bed with distributors and in some respects pay the money.

Well it seems to me that really great companies are born out of, and driven, on consumer needs.

So I think the challenge for the industry and the platform market is to step back a bit and start promoting its value proposition to consumers about what it can do for them.

Let the planning committee work its own destiny out.

Mike Taylor, Money Management: Eric, you’re looking at it from the point of view of a research establishment, and I guess you see it from a perspective of what the platforms are providing, but also from the perspective of what advisers think of those platforms.

I’m just wondering where, in terms of investment trends, your perception of the flow is, and why they’re going there?

Eric Blewitt, chief financial officer, Investment Trends: Yeah, it’s actually talking about some of the challenges, talking about FOFA.

A lot of the planners, a lot of the dealer groups, are really seeing platforms as an enabler, and a helper come FOFA.

So when we asked them what sort of things are you concerned about or what sort things can your platform potentially help you with, last year their concerns were simply ‘are clients actually going to opt in?’

This year it’s actually ‘how can I actually administer all of this?’ and very much looking to the platform providers to assist them with that opt-in.

Off the back of that, to the point that was made earlier, they see the platform as the central hub, the administration vehicle for all of the centre of their business.

As the value proposition and the level of satisfaction has been driven higher and higher, given the quantums of investments that have been made over the last year – about $130 million made across the major platforms – levels of satisfaction are increasing and we’re seeing consolidation, not only in the number of platforms when you aggregate and [at the] overall parent level, but consolidation in the number of platforms that an adviser is using.

So go back a couple of years: three years, they were using around about three-and-a-half on average of platforms.

It’s now two-and-a-bit, so the value propositions being delivered, they’re availing themselves of those services and driving satisfaction.

The level of satisfaction that’s being delivered, it’s being driven up.

Orphan clients

Mike Taylor, Money Management: Moving along a bit, and I guess this is driven by some discussion that I’ve noticed on our website today about what happens if someone opts out, and whether trailing commissions or whatever cease as a result of that.

Now our handy little discussion group on Money Management is basically suggesting that would be a good thing for the platforms because the money certainly – probably – is not going to go back to the consumer”.

I’ve used the word ‘consumer’, Ian, very deliberately there so the question is, if someone basically doesn’t opt to stay being serviced by a particular planner and their adviser, where does the money go?

Ian Knox, Paragem: Well, it raises two or three issues actually, some things in my head, and it goes back to the earlier comment I made, that the implementation remains extraordinarily messy and there’s going to be a period of indigestion where people have to make the rules up.

First of all, if we’re unclear on whether someone is continuing to take advice, no one is sure whether or not the liability for that life carries on past that point.

In the real world you’ve got [clients] who go on holidays and they travel and they don’t answer emails ...

If [clients] find themselves, as I understand it, in a situation where they [haven’t] responded and they’re excommunicated by the adviser because the adviser faces civil action, to quote FOFA, no one’s quite sure what happens then in terms of whether or not professional indemnity carries forward; whether the adviser is in fact excommunicated from pursuing the client for ongoing advice.

And then someone holds an orphan client.

The dark side of that is, somewhat ironically, that will benefit the institution because orphan clients have always been an issue.

Someone has to look after them, and my tip is the back-office ownership will end up looking after them.

Connie McKeage, OneVue: I think there’s a lot of issues. I mean we’re back to, you know, what does it all mean? There’s a lot of ambiguity still.

I think people don’t get where they are and organisation’s aren’t successful because they’re not street smart.

At the end of the day, what a market position is and what happens realistically I think are two very different things.

And let’s be real, do we really think when a large organisation buys the dealer group that they don’t expect it to support their platform?

And do we really think that when an adviser has the client and the client is opted out, that the institution isn’t going to think that they own the client?

I mean, why would you buy them? You wouldn’t.

That just doesn’t make commercial sense, and it’s not a very practical outcome for them. I think it’s time that we actually face the facts.

This is part of the new world and people have to contractually or otherwise deal with these issues so that they protect their client base in these situations.

I think the advisers, unfortunately, a lot of them are not, you know, large business people.

A lot of them have wrong practices, some of them have come out of large institutions, so they really need to up their game and protect their interest.

Kelly Power, BT: So to specifically answer the question around commissions and what happens if someone opts out, I think the three of us representing rack-style platforms have dial-up advice fees.

So if the client opts out, those fees disappear. So we’re not profiting from the fact that a client opts out.

To the point around who owns the client and where the responsibility lies, there’s a fundamental difference in the cost of servicing an advised client compared to servicing a client directly.

So you need a call centre. You need from a super perspective, all of the trustee and fiduciary factors that go around managing their investments and defaults and things like that.

There is a difference in servicing costs, so from that perspective it wouldn’t make sense to charge the client more.

Now I’m not saying that’s something that we’re doing, and obviously our business model isn’t set up for that, but we are absolutely and fundamentally committed to having that client being aligned with an adviser.

So our first step is going back to their adviser and saying, “Re-engage his client, try and talk to them”.

Our second step, go to the dealer group, can you allocate them to a new adviser?

The third step, ‘Alright, if you don’t want advice and you fundamentally don’t believe in that, what can we offer you to self-service?’

That’s the last step though, because I think it is very important that they stay with that adviser, and even from a commercial perspective, it makes sense for our business as well.

Renato Mota, IOOF: Yeah, I agree wholeheartedly.

Tony Graham, Macquarie: Yeah. We’re structured that way where the PDS and everything is around the assumption that there is an adviser there, so we’re in a similar boat to both Kelly and Renato.

We have to find another adviser for that client to be able to keep them on the platform, and if they don’t want to, then we’re going through a process of actually moving them off the platform.

Connie McKeage, OneVue: If it’s ultimately the client’s decision, this is what we’re missing, right? It’s not the adviser’s decision.

The letter had gone to the customer, the customer has chosen to opt out. Nine out of 10 times, this is not going to be the adviser’s decision.

I think we need to face the facts: it has changed from the adviser to the consumer and opt-in is not a very practical solution to an industry that is trying to supposedly support an advice sector, it’s counter to doing that.

Renato Mota, IOOF: And I think certainly I would agree wholeheartedly in the sense that even this concept of owning clients, I don’t think, certainly I don’t believe we...

Connie McKeage, OneVue: You don’t own the client.

Renato Mota, IOOF: The client owns the client.

Connie McKeage, OneVue: That’s right. They own themselves.

Renato Mota, IOOF: So, there’s not a problem with that, but at the same time, our business model has been built around working with advisers, so we will give the adviser every opportunity to re-engage.

If this client still opts out, then that’s the client’s decision.

So I think we’re very comfortable with that, whether that would lead us to handing the money back, look...

Connie McKeage, OneVue: We all agree that you wouldn’t hand the money back.

Renato Mota, IOOF: Well I’m not sure I want to hand them the cheque – I don’t think they’d be any better off.

Connie McKeage, OneVue: Look, it’s a distribution channel, all of a sudden you have a distribution channel for product.

Tony Graham, Macquarie: But it is interesting, Connie, where, in a pure platform sense, managing a client on a platform, though you do need to continue to work with them and notify them and talk to them, and if they’ve got shares, it’s corporate actions.

It’s quite complicated.

Connie McKeage, OneVue: We understand that, trust me. I think I know that.

Tony Graham, Macquarie: It’s quite a challenge in terms of what happens when they are, if they have opt-out and they’re just sitting there as an orphan client.

Ian Knox, Paragem: On the grounds of probability, if you roll the clock forward two to three years, the number of orphan clients would increase dramatically, particularly if the external market continues to create extremely difficult relationships between the planner and the client.

So you can have disillusionment with the client’s sacking planners through a choice to not opt-in, and that means there’s going to be more orphaned clients in the platform industry.

And if what you’re saying is you’re going to find planners, good luck to you.

Kelly Power, BT: I think we’re saying that, if you really believe in the value of advice, and to Connie’s point earlier, if you believe that everyone should have access to affordable advice no matter what your balance is or no matter what your high-net-worth or your net worth status is, then absolutely you should try and re-engage them with a plan that suits their business model, the law suits that sort of advice model.

If that doesn’t work, then absolutely the platform industry needs to evolve to a point where you can provide some form of self-service, where you can provide some form of support to them, and we have trustee obligations around that as well.

So I think you will see that evolve, but I think we’re all saying the best thing for those clients is to stay with an adviser that suits their needs.

Eric Blewitt, Investment Trends: Philosophically, I think that’s right and all coming out of an advised industry; given where we’ve all come from, I think that’s absolutely true.

With the end consumer sentiment at the moment, what we’re seeing is actually quite different to that and that’s really driven by stuff coming out of some of the consumer research we do.

The use of planners is actually dropping off, whether it be advisers – in fact, I won’t just target planners – it’s actually the use of advisers across the piece, whether it be a financial planner, in some cases an accountant or in some cases a stockbroker.

And that’s mainly being driven out of concerns around trust and value proposition.

A lot of consumers, from high-net-worth down to just members of a super fund, whether it be a big industry super fund or whatever, are effectively saying, ‘I’m not actually getting value’ and actually fundamentally saying ‘I think I can actually do it better myself’.

Now part of that is driven by markets: you know, the expectations are ‘I have a plan’ or ‘I have an adviser and my expectations are that they make me money’.

The fact that the markets have gone down doesn’t really matter, ‘my expectations are they were going to make me money and they haven’t actually done that’.

Ian Knox, Paragem: One of the awful subtleties of opt-in is that it offers somebody the opportunity to not carry on, as opposed to sacking – there’s a big difference.

And it is if you’re uncomfortable for whatever reason: the most obvious case that I’ve seen which summed it up to me was a well-known identity in the industry, our industry, who put to me that they were looking forward to opt-in arriving because they did not want to confront their adviser, they wished to not renew, but they didn’t want to tell the adviser that was the situation.

Now that’s a really, really uncomfortable situation for all the parties, and that is magnified in the industry through consumer land. We’re in for a really, really tough time.

Connie McKeage, OneVue: But I think if we forget who we are for a minute and just think of ourselves as consumers, you’re always willing to pay the most in your time of need, which is when you’re desperate.

You go and you get help at that point, and what opt-in provides is when you put that time and attention up-front as an adviser, your value diminishes over time because they forget that you helped them when they really needed that, and what this does is, it unequivocally provides an opportunity for them to forget.

I still think, as a firm, regardless of the fact that we will be prepared for it, we think it’s bad legislation.

Mike Taylor, Money Management: And on that note, thank you ladies and gentlemen.