Wealth management margins face significant squeeze

23 May 2019

Major investment bank UBS has lowered its earnings expectations on AMP Limited and rated IOOF as a “sell” in a harshly pragmatic assessment of the current state of the Australian wealth management industry, including a prediction that platform profits could decline by as much as 30 per cent.

The assessment, contained in a market report issued this week, has made clear the company’s belief that recent efforts by platforms in terms of cutting fees may not be enough.

“Successive recent admin fee cuts from the major providers are in our view a band aid solution,” the report said. “They may ease outflows, however these moves could ultimately exacerbate Legacy/Contemporary shifts and revenue pressures”

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“Even if major wealth managers undertake radical cost surgery, platform earnings could decline more than 30 per cent from here,” the report said while confirming the firm had lowered its earnings assessment for AMP and IOOF to reflect this pressure and rated IOOF as a “sell”.

Backing its gloomy assessment of fee margins, the report said the company had reviewed over 130 product disclosure statements (PDSs), mapping fees across $660 billion of funds under management, representing more than 95 per cent of the major and speciality platform providers.

“We estimate major wealth management fee margins could drop by around 40 per cent over five years if contemporary fees fall to 30 basis points and legacy outflows accelerate” it said.

The report also forecast sharp profit reductions in wealth management, even if cost bases were cut by 20 per cent.

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I agree with prediction...market is too competitive and retail platforms have never competed with Industry funds. Besides, BT Wrap, and every badged platform, which were a blatant rip off, I feel for all of the Super providers. Administrating a fund is expensive, the legal and compliance requirements are expensive. And then you have Fund Managers charging like raging bulls...

Ive been using a certain wholesale product for years, it usually beats a lot of the industry funds on price. My balanced portfolio for example has a MER of about .80%, Hostplus for example the overall MER is 1.11% for the similar investment. So I can even charge a ASF and still get better value.

thats true, a select few wholesale platforms can be made very competitive, however most of the major dealers such as Count only allowed badged versions and applied dealer fees etc. So in cases of BT wrap badged, it would be 1% admin, 1% ICR, then 1% ASF. ridiculously high and over 20-30 years would affect retirement balances significantly. In your case, at 20-50 basis points for product costs then say 70 basis points for your service would be a win-win for industry. Again Fund Managers are the untouchable rip off merchants.

"And then you have Fund Managers charging like raging bulls..."

Very too

UBS rates IOOF as a "sell" and we are right in the middle of explaining to OnePath clients why their superannuation, investment and retirement accounts have all been transferred to IOOF and that everything will be " just fine " ?
What an absolute f**k up .

One Path is doing great by advisers at the moment, sending all the clients letter saying how easy it is to rebate grandfathered commission and how to take an adviser off your account without telling them. I quote : " You can advise us directly to cease paying commission on your account. You are not required to tell your financial adviser" I don't have any grandfathered commission clients, but this is just backstabbing advisers! Stuff One Path! I will never write any business with them anymore, and neither should anyone else.

Yes, so the wording goes as follows:
" Recently the Financial Services Royal Commission recommended that 'grandfathered' commissions currently being paid to advisers in relation to superannuation and pension products , cease being paid. ALTHOUGH THIS RECOMMENDATION IS YET TO BE LEGISLATED, IT IS EXPECTED TO BE" !!!!!!!!!!!!
" In ANTICIPATION of this change, the trustee of your super fund, OnePath Custodians Pty Limited, has been REVIEWING the payment of adviser commissions"
So, now we have product providers seeking to influence and manipulate client behaviour based on EXPECTATION and ANTICIPATION and not based on the current legislation.
The letter then continues to state:
" You will generally benefit from reduced product fees once commission payments cease ".
Really ?
So, a trail commission payment of .50% p.a. is replaced with an ASF of .50% p.a.......cost advantage or benefit is zero.
OnePath rebates the commission of .50% p.a. to the client account and it comes back out as the ASF.
The only way the client benefits from a reduced product fee is if they no longer receive or pay for any advice at all.
Is that a good outcome for the client...no advice, no strategy, no direction, no planning ?
Finally, on the second page of the letter it states:
" The reforms allowed pre 1 July 2013 commission payments to remain in place and these are referred to as 'grandfathered' commissions ".
OnePath are clearly stating that grandfathered commissions are legislatively allowed to be paid whilst encouraging the client to cancel the payment based on expectation and anticipation of a proposed legislative change.
In a separate document referring to the successor fund transfer process it states:
" All staff receive a salary. Those who provide general financial advice may also be eligible for performance related bonuses and other staff related bonuses" (what, for providing general advice with no consideration for the clients best interest or personal financial position and circumstances) ?

At least they just didn’t turn it off on the entire platform I suppose. They are forcing advisers to be ethically because they know they till them out. Don’t know why advisers are still getting their knickers in a knot over comms. The free money has gone. Get a grip and focus on adding real value. If you are caught up on grandfathered comms the you can’t have a lot to offer.

Bear, its the principal of the thing, why should the big instos get to keep this money which by the way was never a fee for service, it was a distribution fee, so its totally different. Do you want the instos to get more money at the expense of advisers? Why? You think it would be fair for the government to turn off commission on loans for mortgage brokers that were written pre 2013 for example? There is no difference if you look at it. If you think any of these instos will turn off a .60% commission and rebate the full amount to the clients you are in fantasy land, it just wont happen. Back in the day the companies offered two products , one to the public directly and one via planners. The one offered by planners and the one offered direct had exactly the same fees for clients, just that the insto wasnt making as much money from the advised ones, the client wasnt paying extra, when you realise this, it gives you more understanding of this whole situation, and more of a idea of what the instos willl do to the clients once the comms are removed, yes thats right they put them into a new product! With you guessed it a new fee structure.

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