Step Up To Platforms

In looking at the growth in platform management systems, illustrated by MultiManager as promoted by Butcher & Moody, we need only look to the Australian economy for pointers as to the rewards they can bring.

Australia has one of the fastest growing and most innovative investment markets in the world, which has been fuelled by a combination of Government regulation, product competition and a growing demand for financial advice.

Total funds under management in Australia recently topped the $1 trillion mark. According to July 2006 figures from the AFG Global Funds Management Index, Australians have more money invested in managed funds than any other nation, at close to $50,000 each - 15% more than our nearest rival, the US.

Funds under management have ballooned off the back of three years of double-digit growth in the share market, increased saving by an aging population and the weight of money being invested in superannuation (pensions) via the compulsory 9% paid by employers into their employees' superannuation funds.

Platform Model 
Along with financial advisers such as Butcher & Moody, platform providers play an important role as gatekeepers between the fund management companies and the investing public.

Platforms have been popular in Australia since the 1990s when fund managers were jostling for market share in an increasingly crowded market. In the calendar year 2005, platforms commanded 67% of total net inflows and more than 80% of inflows in the retail space.

Essentially, platforms (also known as 'master trusts', 'wraps' and 'Portfolio Administration Services') are an administration tool for advisers. They offer a wide range of investment choices and asset classes all in one convenient location, making it easy and efficient to diversify clients' portfolios.

For fund managers, platforms offer access to retail investors without the cost and hassle of having to run a full-service retail business. For advisers, they offer access to wholesale funds which are usually only available to investors with large amounts, creating a blurring of lines between retail and institutional products with real benefits for the clients.

Time Saving
As a result of their scale and significant investment in IT, platforms also offer advisers an efficient tool for cutting down on paperwork, helping them to maximise client-facing time.

Some advisors may use up to 2-3 platforms: a main platform for the majority of clients and one or two secondary platforms for more specialist requirements. The choice of platform can often be governed by the adviser's network

Advisers, such as Butcher & Moody, then have a single point of contact for enquiries and can download consolidated client reports quickly and easily, instead of dealing with hundreds of prospectuses and several statements per client as well as an array of business development managers, fund managers and administrative staff.

Switching clients' funds between fund managers is simple and requires just one form, there is one prospectus and information and research on managers can be accessed online. Platform providers also do their own investment research, with strict criteria for managers, which cuts down on the work for advisers and their dealer groups. Most platforms offer a range of between 70 and 300 funds.

A Service-Based Advice Model
Platform technology enables advisers to offer quality advice on a scale which was not previously possible. Time saved on administration means more time to: research and understand investment markets and products; spend with clients; produce investor reports, newsletters, web sites and so on.

Fee-For-Service Advice
A major change in the Australian market in recent years has been greater demand for fee-for-service rather than commission-based advice.

The Financial Services Reform Act 2001 (FSR) was created to help professionalise the financial planning industry and bring in greater disclosure, training and consumer protection.

This legislative change is costly for a planning practice but platforms have helped to make the transition to FSR easier. The business model of a platform - which comprises IT, product management, compliance, business development, finance and administration - is not easily replicated for small-scale business or individual planners.

Fees are fully disclosed and the adviser chooses whether they will charge upfront and trail commissions through dial-down facilities. The client can see the fees taken from the account and the adviser fee is also transparent. This is a move away from the traditional old-world retail bundled fee structure, which was unpopular with investors and consumer groups. Typically, advisers now focus their remuneration (fees or commission) on recurring income, charging no more than 2% initial commission, but up to 1% of assets under advice, in return for the high quality service on offer.

There is still further work to be done in the platform market as scale becomes increasingly important in a packed market place. In Australia, as in any market where competition prevails, it is likely we will see providers consolidating and becoming more efficient, so only the fittest will survive.

It is easy to understand why the UK market is now following Australia and offering more platform management systems. The benefits are clear for the both the providers and the advisors, but more importantly for the clients.