Low cost platforms eat into retail market

The new generation of low cost master trust and wrap platforms are continuing to cannibalise fund inflows from both direct retail funds and older more established platforms, new research confirms.

A survey by research house Assirt of 852 planners in July revealed the proportion of flows direct to retail funds fell from 38 per cent in 2002 to 24 per cent in 2004.

Assirt’s Adviser Market Trends Report 2004 also projects further falls ahead in direct retail flows from planners, who are estimated to contribute 90 per cent of the flows.

Survey co-ordinator Vanessa McMahon says the figures reveal “a shift of seismic proportions” in the wealth management market since the entrance of the new generation retail platforms two years ago.

“The traditional platforms set the scene for the demise of direct retail flows years ago, but the new generation retail platforms make their extinction inevitable, and have rapidly accelerated the trend.”

McMahon says these platforms, such as the pioneering Colonial FirstChoice, are “cannibalising flows from traditional platforms and direct retail in almost equal proportions”.

“Just more than half of the surveyed advisers said flows they now put in retail platforms would have otherwise gone to traditional platforms, while just under half would have placed those funds with fund managers directly,” she says.

She says larger fund managers such as Perpetual, AXA and Credit Suisse Asset Management (CSAM) have reacted to the erosion of direct inflows by developing their own platforms.

“Smaller fund managers without a strong presence on platforms are feeling the pinch, however, and searching for alternative sources of flows,” she says.

CSAM head of distribution Brian Thomas says the Assirt research “confirms a trend we’ve been aware of at CSAM for quite some time”.

“More than 90 per cent of our inflows now come through various master trusts from the financial planning market, up from 75 per cent five years ago,” he says.

He says the trend started off slowly with the launch of traditional platforms, such as Asgard, but speeded up with the entry of the new lower cost retail platforms.

“A lot of planners who ‘pooh-poohed’ the original master trusts for being very expensive for what they delivered have now been convinced by the impact of the new master trusts on the price paradigm,” Thomas says.

He says a direct market could remain for some bank-based distribution of products.

However, he says “simply-structured master trust products that look like retail funds” could emerge in time to cater for this 10 per cent of the market.

The only other factor that is going to support retail is that it can be tax inefficient from the investor’s point of view to move existing retail money into master trusts, Thomas says.