News

The investment platform at the heart of the long-running battle between National Australia Bank and the Australian Competition and Consumer Commission is used by fewer than one-in-10 financial advisers, new research shows.

North Wealth.net is the centrepiece of negotiations to win the regulator’s support for the $13.3 billion deal as the level of competition in the industry comes under scrutiny.

The platform is used by 7 per cent of advisers, half of whom are AXA Asia Pacific Holdings-aligned through its advisory networks.

Further, only 2 per cent of financial advisers use it as their primary platform, the Wealth Insights Adviser Markets Trend Report concludes.

The findings come as AXA SA is today expected to announce the second extension of its exclusivity agreement with NAB precluding other parties from approaching AXA APH to discuss an alternative deal. The previous deal expired on midnight Thursday.

The Wealth Insights survey, soon to be released to the market, covered the 12 months ended May and involved 750 advisers.

“It is only one of many platforms and all are struggling to gain market share because financial advisers are entrenched in the platforms that they use,” said Vanessa McMahon, managing director of Wealth Insights, a market research group for the wealth management sector. According to AXA APH, more than 2400 advisers are registered to use North.

It is unknown whether the latest exclusivity arrangement will also stand for six weeks, or whether the French parent, which wants AXA APH’s Asian assets out of the carve-up, has imposed any additional terms.

AXA APH, which also has the Generations, Summit and Synergy platforms, has some $18.4 billion in funds under management on platforms, which is equivalent to a 9 per cent share of a $212 billion market covering superannuation, allocated pension and investments. Those figures come from Plan for Life, for the 12 months ended March.

The wealth manager is the sixth-largest platform provider in a sector dominated by NAB, which has a 23 per cent market share, $48 billion under management, and last year grew by nearly 40 per cent following the takeover of the Aviva platform.

AMP, whose bid for AXA APH was last year rejected, has a 14 per cent share that rose more than 26 per cent to $29 billion. AMP rents space on the Asgard platform owned by BT Financial Group, the investments side of Westpac Banking Corp.

The increasingly sophisticated administrative and investment capabilities of the platforms have made them the key tool used by financial planners and thereby desirable takeover targets by wealth managers seeking wider distribution.

In April, the ACCC opposed NAB’s bid for AXA APH because it “would result in a substantial lessening of competition in the market for retail investment platforms for investors with complex needs”.

It also rejected the bid because AXA APH was “on the cusp” of delivering new technologies that would “provide aggressive competition for investors with complex investment requirements”, the ACCC said then.

Mark Cassar, an executive director of DST Global Solutions, the licensor of software used in North, yesterday said its “flexible and configurable” platform technologies enabled investors to access and self-service their portfolios through an internet browser, helped companies to remove manual processing and provide sophisticated software solutions for investment products.

A spokeswoman for BT Financial, which is spending $70 million to upgrade its systems, said she was confident BT’s could match North’s.

Opt-in hurts planner sentiment

Money Management, 10 June 2010

Page 1
Caroline Munro

Nearly half of Australian financial planners expect their practices to be adversely affected by the Government’s proposed annual opt-in provisions for ongoing adviser services, according to new research released by Wealth Insights.

The Wealth Insights data, gathered in early May and covering around 500 planners, revealed that nearly half of those surveyed (47 per cent) believed the proposed opt-in provisions to come into effect from 2012 would have a ‘very bad’ or ‘bad’ impact and therefore result in a reduction in their business revenues.

The adviser research, conducted several weeks after the reforms paper was released by the Minister for Financial Services, Chris Bowen, suggested concerns about the impending changes had driven sentiment about the future outlook of the industry to levels lower than before the global financial crisis (GFC).

Wealth Insights managing director Vanessa McMahon said adviser sentiment looking out over the next five years had not improved in line with the market and was significantly lower than the five-year outlook recorded in December 2008, which was the lowest point of the GFC. This contrasts with earlier Wealth Insights data suggesting advisers were reasonably satisfied with the present state of their businesses.

The research showed that 47 per cent of respondents rated the annual renewal to ongoing adviser services as ‘bad’ or ‘very bad’, and this negative sentiment increased to 56 per cent for advisers who charged trail commissions. Some 38 per cent stated that the opt in changes would decrease revenues slightly, 12 per cent said they would decrease a lot and 6 per cent stated they did not know. Some 36 per cent of advisers felt there would be no change to their revenues, while 6 per cent stated it would actually increase slightly and 1 per cent said it would increase a lot.

While there has been much debate about whether or not there would be grandfathering provisions to protect trail commissions pre-July 2012, McMahon said the research asked how an annual opt-in requirement would affect advisers’ client base if it were to apply from July 2012, as touted by Bowen.

The research found that on average all advisers expected 20 per cent of their clients would not opt-in every year, and that increased to 29 per cent among advisers who charge trail commissions, while those who charge fee-for-service on average expect that 17 per cent would not opt in.

Considering the reforms in general, 31 per cent said their businesses would be worse off or much worse off, while a further 2 per cent stated they would probably close or sell their business. Some 39 per cent felt that the reforms would have no effect on their business, while 21 per cent felt they would be better off or much better off.

Consolidation of platforms leads to less choice for investors

The Australian Financial Review, 5-6 June 2010

Page 45
Madeleine Koo

If you go to see a financial planner, chances are their business will be owned by an institution that manufactures financial products and owns investment platforms.

This is even more likely after another bout of the mergers and acquisitions that have dominated the industry for a decade.

Advice firms, known in the industry as dealer groups, are often cleverly branded so their ownership structure is buried in fine print within advice documents and down at the bottom of websites.

Banks and institutions have carved up the market so there is less competition among providers of financial advice than ever before. This equates to reduced choice and potentially higher fees for investors.

The high-profile tussle between AMP and National Australia Bank over Axa Asia-Pacific has many worried for these reasons. The Australian Competition and Consumer Commission scuttled NAB’s $13.3 billion bid for Axa last month on the grounds that a merged NAB-Axa would remove competitive tension around investment platforms that are used for holding clients’ capital.

“Allowing NAB and Axa to merge would significantly diminish incentives to compete for retail investment platforms used by investors that have complex financial needs,” according to ACCC chairman Graeme Samuel.

About 80 per cent of investment flows in Australia are channelled by financial planners through platforms – computer systems that act as central hubs to report, administer and manage investors’ portfolios. They are big business because the owner decides the platform’s product range and gets a clip of the ticket on each dollar that makes its way through the system, even if it’s invested in funds not owned by the platform provider.

In 2006, there were 15 owners of leading platforms and today there are only nine, according to research agency Wealth Insights.

“The industry lies in wait for the next round of consolidation – and not just to see who succeeds in the Axa takeover but also which other of the relatively smaller players might soon get together with a rival,” Wealth Insights managing director Vanessa McMahon says.

In its investigation into the proposed acquisitions, the ACCC cited concerns that an Axa merger with either NAB or AMP would give them “the ability and incentive” to raise platform fees and increase rebate payments, which are sales incentives given to suppliers and planners.

It also noted industry fears about the increased concentration that either party will gain through its increased number of aligned planners.

Consumer group Choice says it shares the ACCC’s concerns as less competition means consumers receive limited choices in products when they seek financial advice.

“We want to maintain maximum competition in these areas,” Choice spokesman Christopher Zinn says.

Even without the Axa bid, NAB is on an aggressive acquisition trail. The bank’s $825 million purchase of the wealth management business of British insurer Aviva means NAB’s wealth manager, MLC, is now the biggest provider of life insurance in Australia.

Life insurance is one of the biggest sources of profits and commissions for planners.

A spokesman says MLC is removing legacy systems from Aviva’s Navigator platform and reducing costs so it can invest more in technology and product development. “The benefits of building scale flows through to our customers through enhanced capabilities and services,” he says.

MLC recently paid $99 million to buy 80.1 per cent of the private wealth business of Goldman Sachs JBWere and is migrating clients to a new platform.

It is also reported to be in takeover talks with Professional Investment Services, one of the last large planning firms in the country not owned by an institution.

Platforms in Pursuit of IOOF

Money Management, 2 June 2010

Page 1
Mike Taylor

IOOF’s Pursuit platform has broken the dominance enjoyed by Colonial First State in the highly valued Wealth Insights Platform Service Level Survey.
Pursuit emerged as the leader in terms of platform service levels, breaking a two-year run by Colonial First State (CFS), which had to be content with being named the leader in terms of fund manager service levels for a third year in succession.

The Wealth Insights Service Level Survey is designed to provide an industry standard measure of financial adviser satisfaction with service levels. Commenting on the outcome of the annual survey, Wealth Insights managing director Vanessa McMahon said that while Pursuit had displaced CFS, it was more a product of generally rising standards than any diminution in quality on the part of the CFS offering.

“Platform pricing is converging,” she said.

A key element that may have differentiated the Pursuit platform was its competitive pricing model, with the IOOF product offering a capped fee structure – something which McMahon believed might have been influential.

“Planners perceive that the product offering is converging and the key way for platforms to differentiate themselves now is around their service offering,” she said.

IOOF confirmed account balances greater than $500,000 were capped and there was a tiered fee structure up to that amount. It also said that up to four accounts from family members (or same sex couples) could be aggregated to qualify for the cap.

The other top-rated platforms with respect to service levels were Macquarie Wrap and Navigator, while Fidelity and Perpetual were the top fund manager service level finalists behind CFS.

Drilling down on the reasons planners gave for preferring the Pursuit platform, McMahon said that its personalised service had been rated highly along with proactive follow-ups and a solid back-office.

IOOF managing director Chris Kelaher welcomed the Pursuit platform’s emergence at the top of the Wealth Insights survey.

“To win this award, particularly at a time when IOOF is in the midst of an integration after the merger with Australian Wealth Management and purchase of Skandia, is fantastic,” he said. “This win is an absolute credit to the team at IOOF.”

Despite the CFS platform being displaced from its leadership position, Colonial First State chief executive Brian Bissaker said he was delighted the company had won the fund management category for a third year in a row.

“Funds management is our heritage and this is a reflection of not only our investment performance but the levels of service we provide,” he said.

Planner sentiment slips as markets slidee

Money Management, 13 May 2010

Page 3
Mike Taylor

A levelling off in share market returns combined with the Government’s pronouncements on financial planner remuneration appear to have dented confidence in the financial planning industry, according to new research conducted by Wealth Insights.

The research, conducted over the past four weeks, revealed sentiment among advisers had dropped to levels not seen since around September and October last year, when the market recovery was just beginning to gain genuine momentum.

Asked whether, in their role as a financial planner, times were good or bad right now, the Wealth Insights survey revealed a distinct deterioration in confidence between February and May on the part of planners, with more than half taking a negative or marginally negative view.

The research revealed that planners who believed things were good or very good had dropped from 44 per cent of respondents in February to just 35 per cent in May, while those who believed things to be bad or very bad had grown from 6 per cent to 18 per cent over the period.

Those describing things as being ‘average’ declined from 49 per cent in February to 47 per cent in May.

Wealth Insights managing director Vanessa McMahon said she believed the research pointed to increasing levels of uncertainty in the minds of planners.

“The year started on a positive note because they would have been still buoyed by the strength of the recovery which occurred through the back-end of last year, but they are now encountering a lot of uncertainty,” she said.

McMahon said she believed that it was significant that sentiment had appeared to drop with the stock market but that the discussion about planner remuneration and the recent announcement by the Minister for Financial Services, Chris Bowen, were also likely to have been factors.

Despite the tapering off in adviser sentiment between February and March, it remained at much higher levels than February and May last year, when it reached its lowest level on record.

However, the Wealth Insights sentiment index is still sitting well below the peak it reached in February 2008 ahead of the sub-prime crisis, the collapse of Lehman Brothers and the onset of the global financial crisis.

Questions raised over ACCC decision

Money Management, 28 April 2010

Page 1
Mike Taylor

The Australian Competition and Consumer Commission (ACCC) appears to have significantly over-estimated the impact on the Australian platforms market of National Australia Bank (NAB) gaining control of AXA Asia Pacific (AXA AP).

Analysis undertaken by leading platforms research house Wealth Insights, into how the Australian platform market would look following a NAB acquisition of AXA AP – or, alternatively, an AMP Limited acquisition of the company – reveals there would be no substantial change in the balance of power.

It reveals that the market would still be dominated by three big banks: Westpac, the Commonwealth and NAB – with NAB still running third. Much greater change to the overall balance would occur if an AMP bid proved successful.

Wealth Insights managing director Vanessa McMahon points out that the graph (below) shows the proportion of advisers who use platforms offered by the providers listed, rather than the proportion of funds under management.

McMahon is among those puzzled by the reasoning behind the ACCC’s decision to veto the NAB bid. When contacted by Money Management, she said that while there existed a set of platforms more likely to be used for sophisticated and high-net-worth investors, her research revealed there were at least six key providers in the space.

She said that not only were the six providers actively vying for clients, but so too were some smaller platform providers and software companies.

McMahon said that while she was not privy to any information about AXA’s new platform, she believed it was extremely unlikely it would ‘provide aggressive competition’ as claimed by the ACCC.

“This is because, regardless of how good it is, planners have myriad reasons for steering clear of new platforms,” she said. “In the last four years most platform growth has virtually stalled. Most platforms lost or gained no more than a few per cent of planners over this timeframe, highlighting the stability and maturity of this market.

“Take, for example, AXA North. It has had around 7 per cent of advisers take it up, and most of them are already aligned to AXA and generally use it for less than one-fifth of their client base,” McMahon said.

The Wealth Insights managing director also took issue with the ACCC’s assertion that in the absence of competitive pressure from AXA’s platform, existing providers were unlikely to have the incentive to drive innovation.

“In my experience, the reverse is true,” she said. “There isn’t a platform provider in the industry that isn’t constantly striving to keep up with, and get ahead of, the rest of the market in terms of service, functionality and software integration.”

She said this was something which was underscored by the number of senior executives who have key performance indicators and bonuses attached to how advisers rated their platforms relative to the competition.

The future for the platform market

Money Management, 6 April 2010

Page 14
Jason Spits

One decade ago a US-based research firm arrived on Australian shores telling the wealth management industry that everything we knew about platforms was going to change. You may remember the name: Cerulli Associates. Money Management used the headline “Master trust time bomb” to describe the report presented by the Americans.

Yet despite dire predictions gloom has not descended onto the retail funds management market or the platforms that were – and still are – a key part of retail financial services.

Wealth Insights managing director Vanessa McMahon says that instead of declining, platforms received a boost during the boom years of the early part of this decade. This has continued, making them popular targets for acquisition.

Recently, Wealth Insights released research that demonstrated the number of platform providers in the market had dropped from 15 to nine since 2006, thus fulfilling – albeit belatedly – one of the Cerulli predictions. Moves by the banks to build or acquire fund management operations have also led the platform providers to be the top of the pile in a number of key areas. These include the percentage of advisers using their platforms as well as market share (see table 1).

Despite this upward trend, one number that has not decreased is the amount of platforms in the market. Data provided by Dexx&r indicates that at present there are still nine wrap products operating under various labels and 29 master trusts as of December 2009 (see tables 2 and 3).

Platform ownership has been going through market consolidation, but there has been no real change in the number of platforms currently on offer. This is consistent with an evolving and developing marketplace, according to Praemium Group chief executive officer Arthur Naoumidis.

“Consolidation presupposes no further evolution in the platform market, but people will continue to invest in new ways of doing things and some will win and some will lose those investments. It is not a case of ‘if’ but ‘when’, and innovation does not stop – especially in financial services,” he adds.

He claims about one-fifth of funds in the platform space are administered through non-aligned platforms, and that this is where future innovation will take place. It is not that changes have not occurred, according to Naoumidis – it is more a case that many of the changes on larger platforms under an institutional owner are harder to implement and more costly. This is the result of legacy systems many platform owners have taken onboard as a result of acquisitions.

McMahon says the larger end of the market is in a very mature phase, and movement between platforms is less than 6 per cent each year. As a result of this, there is no room for a new player that would offer a platform product (as the market currently knows them) in the same way Credit Suisse attempted a few years ago.

Rather, if new ground is to be broken in the platform space it will be due to technological advances and price pressures, McMahon says. “Any new offering would have to be based on amazing technology or offered at a very good price, and there must be people out there who are developing new products with both of these in mind.”

She continues: “Advisers are still fee conscious for themselves and their clients, and it has been argued that there is not much room to move on fees. Any reduction in overall costs either at the platform level or the [management expense ratio] level would result in huge savings for the advisers.”

Naoumidis also sees space for new entrants in the small, technology-driven arena. He says the emphasis will be on independence and low costs. For example, Praemium currently provides its V-Wrap service to the new entrant, Powerwrap, which opened for business in the middle of 2009.

Powerwrap chief executive Andrew Varlamos does not envision his group remaining the only new entrant in the market. He says interest for non-aligned platform solutions will be the seeds of growth for the next generation of platforms.

“As a relatively new player we are seeing interest from a wide range of planners, including those aligned with larger licensees. There is recognition that a new entrant into the market provides opportunity, and while some may be concerned that new technology requires an investment, it is also cheaper, quicker to build and takes less time to get up and running,” Varlamos says.

He also challenges the position of the incumbents in the platform space, stating they can only be considered as such based on their current offerings to the market – which assumes that clients and financial planners are happy with what they are being offered.

“The global financial crisis pushed end clients to seek better and cheaper markets. The platform space is not static, despite its appearance. The growth of self-managed super funds (SMSFs) has demonstrated the interest in more control, value and transparency and this will create a better environment for new platform entrants than previously seen in 2008 and 2009,” Varlamos says.

It is in this area of investment control and engagement in regards to SMSFs that wrap accounts and even industry funds will face pressure in the future, according to Naoumidis. He sees established platforms as breeding grounds for disaffected clients who will begin to look for greater control and transparency as their wealth grows. At the same time he believes that not only will we see new platforms, but also new types of platforms that focus on products such as separately managed accounts (SMAs).

“In Australia SMAs are sold at the product level, but in the UK they are sold at the strategy level. We may see something of that nature where an SMA or SMAs holding directs equities, exchange traded funds (ETFs) and managed funds is on offer,” Naoumidis says.

While the bank-owned platform space may be saturated, people will still want different services. But financial planners will need compelling reasons to shift from current platform models, says Naoumidis.

“These reasons will need to be more than just a price difference but also a range of investment options that are future proof and demonstrate the long-term capability of the platform to both the advisers and the client. Financial planners need a sustainable revenue stream and will consider any platform in regards to its long-term return,” he says.

McMahon says despite interest in SMAs and individually managed accounts (IMAs) they have yet to take off with advisers – even among those advisers who are looking for more control over client portfolios or a cheaper route to market. However that is not necessarily the fault of the advisers, who can be busy dealing with clients.

“Take for instance the use of ETFs instead of index funds. ETFs can be cheaper but do the same thing as index funds, but retail funds managers are not telling licensees or platforms about ETFs or index funds. Their focus has remained on retail funds offered through a traditional platform offering,” McMahon says.

However Vanguard head of retail, Robin Bowerman, says the battle for the desktop has not taken place under the cover of consolidation (which has not affected the group’s access to planners), but rather with regard to the value proposition of the underlying manager.

“This is the issue for new managers entering the market. Can they get traction and exposure in a more concentrated platform market where platform presence is a substitution game?”

Bowerman says it is understandable that platforms have consolidated under fewer owners to gain scale as they experience margin pressure across the market. The move to fees will lower costs, he says, and price pressure will be applied across the whole distribution chain.

“As a relative low-cost manager we have been pushing the message that advisers are looking at lowering costs, and this will have a long-term structural shift. Advisers are moving to a fee-for-service model because they want transparency, and platforms must be able to support that,” Bowerman says.

“Platforms need to recognise they no longer act in isolation, and they will be influenced by financial planners and their views of what is on offer and how much it costs.”

The Independent Financial Advisers Association of Australia (IFAAA) managing director, Daniel Brammall, also sees the interaction between platforms and advisers as setting the tone for the future. “Owners of platforms do exert control and it can range from the indirect to the direct and from the subtle to the obvious. In some cases they have already done so by claiming to have simplified the business of the financial planner but instead have built a dependence on the platform through compliance, back office and reporting tools,” Brammall says.

However, in his experience, he has not seen a consolidation of platform offerings but rather a push for diversity among platform owners – which in turn has caused some concerns.

“The consolidation of owners has left a good range of platforms in the market but the agenda of institutional owners to work products down to the grassroots has not been a positive outcome for the industry. Neither is the development of the platform paying advisers who use a fund that comes from within the same group. In this regard consolidation has heightened potential conflicts of interest,” Brammall says.

“This reliance on platform providers can cause a predisposition to use them, and when platform providers make financial planners addicts to their products this can lead to problems with the advice.”

But Brammall also believes that platforms can lead the way in how planners charge for their advice by forcing advisers to abandon traditional fees and commissions and charging flat dollar or hourly rate amounts.

“By shifting from a funds under management approach to fee-for-service model platforms, working with licensees could provide simplicity for both planners and clients. It is an education issue as much as a financial issue and at present the standards are not high enough to make advisers appear professional.”

Brammall’s concerns are likely to continue to be the subject of debate, particularly given the state of flux the post-GFC markets find themselves in at present.

Money Management outlined some weeks ago how further changes in the platform space may pan out (Banks tighten grip on platforms market, Money Management, January 28, page 12) but IOOF has already signalled that it will pare down the number of platforms that it owns. IOOF managing director Chris Kelaher stated at the group’s interim results announcement in February that it would move from the eight platforms it operates at present down to three by the end of 2011.

These three platforms were not disclosed, and neither was a definite timetable. IOOF stated those platforms that would remain and how the others would be integrated was dependent on adviser and client feedback. But IOOF should have some experience of this, having recently completed the rationalisation and integration of Skandia clients and funds, worth about $4 billion, into its existing product mix.

Yet rationalisation and consolidation doesn’t come easily, with IOOF telling Money Management that 125 investors meetings were needed to complete the Skandia integration project.

It may be this potential workload that is putting off some of the larger platform owners from taking the knife to their roster of investment platforms.

Planner sentiment on the rise

Money Management, 11 March 2010

Page 1
Mike Taylor

Financial planner sentiment is climbing back towards the positive levels that prevailed before the global financial crisis, according to new research released by specialist financial services research house Wealth Insights.

The data, collected by surveying financial planners during February, reveals that financial planner sentiment reached its nadir in Australia in February last year. It began its descent amid the grim news associated with the sub-prime mortgage crisis in the US, the collapse of Lehman Brothers and the flow-on effects for the Australian economy.

Wealth Insights managing director Vanessa McMahon said the survey outcomes over the two-year period between February 2008 and February 2010 told their own story about how Australian financial planners were affected and how they felt about it.

Importantly, the recovery in sentiment among financial planners experienced a correction in January, before resuming its growth in February – something McMahon attributed to the downturn in equity markets at the time.

The Wealth Insights survey reveals that while planner sentiment has not yet reached the heights that existed in late 2007, significant numbers of planners regard times as being ‘good’ or ‘very good’ right now.

The data reveals that 44 per cent of the planners surveyed believe times were ‘good’ or ‘very good’, while 49 per cent regard times as being ‘average’.

Only 6 per cent of respondents held negative views about their existing circumstances, with 5 per cent describing times as being ‘bad’ and only 1 per cent regarding things as being ‘very bad’.

This compares to the same survey conducted in February 2009, when 48 per cent described times as being ‘bad’ or ‘very bad’, 40 per cent described them as ‘average’ and only 12 per cent regarded times as being ‘good’ or ‘very good’.

Execs close in on higher bonus

The Australian Financial Review, 25 February 2010

Page 25
Tony Boyd

Nine senior executives at the Commonwealth Bank of Australia are a step closer to earning at least $17 million in bonuses this year after the bank moved up the ranks of a key customer satisfaction survey used to determine the vesting of long-term incentives.

. . . . (see The Australian Financial Review for the full article.)

The full $34 million will only be allocated if CBA is No. 1 in customer satisfaction as mesured by three external surveys.

Apart from Roy Morgan, the surveys are the TNS Business Finance Monitor and the Wealth Insights survey of master trusts.

CBA is No. 1 in the Wealth Insights survey.

Banks carve up platform market

Money Management, 28 January 2010

Page 1
Mike Taylor

Control of the Australian platform market has nearly halved in the past four years to be dominated by three of the nation’s big four banks.

That is the bottom line of a research analysis undertaken by Wealth Insights, which revealed that in 2006 there were 15 different entities owning or controlling platforms, while today there were just eight. That number will decrease further if the Australian Competition and Consumer Commission (ACCC) approves National Australia Bank (NAB's) acquisition of AXA Asia Pacific.

Perhaps just as importantly, the Wealth Insights analysis has revealed the degree to which Westpac’s acquisition of St George delivered the combined group market dominance in the platform space well ahead of even its most aggressive banking rivals.

While much of the ACCC’s attention on the merger was directed towards the impact on bank branches, funds management and financial planning, the Wealth Insights analysis has revealed the benefits to the banking group of the combined BT and Asgard platform offerings.

According to the managing director of Wealth Insights, Vanessa McMahon, the merger was “inspired” in that it served to deliver control of one of the leading platforms for “non-aligned” planners in the form of BT along with a platform for “aligned” planners in the form of Asgard.

“It may not have been obvious to everyone at the time but it proved to be very clever because it has had the effect of delivering the Westpac Group control [of more than] one-quarter of the primary market (the platforms nominated by planners as their primary/preferred platform vehicle),” she said.

With the ACCC currently considering NAB’s acquisition of AXA Asia Pacific, Wealth Insight’s analysis has revealed the degree to which this would further impact control of the platform market, as well as the implications of ANZ moving, as rumoured, to acquire IOOF.

The accompanying table, provided by Wealth Insights, while revealing the change in control of the platforms and where control now resides, does not indicate market share. Rather, it indicates the degree to which those platforms are used by planners.

The table also reveals the scale of the change generated by NAB’s acquisition of Aviva compared to IOOF's merger with Australian Wealth Management and then its acquisition of the Skandia platforms.

What is clear, however, is that Westpac/St George/BT is dominant both in terms of usage and preference on the part of planners.

McMahon said when assessing the impact of the consolidation that had occurred in the platform market, it was important to recognise the significant barriers to entry, which made it highly unlikely that there would be any new entries.

Banks tighten grip on platforms market

Money Management, 28 January 2010

Page 12
Mike Taylor

There has been much speculation and commentary about the manner in which National Australia Bank’s (NAB’s) acquisition of AXA Asia Pacific, following on from its acquisition of Aviva Australia, will change the shape of the financial planning industry, but the real impact will be on the platforms space.

Indeed, as the Australian Competition and Consumer Commission (ACCC) sits down to consider the implications of NAB’s latest bid for growth, it ought not be worrying about who owns which dealer group. Rather, the competition regulator should be worrying about who now controls which platform.

While it is true that recent mergers and acquisitions have resulted in significant numbers of financial planners finding themselves working under the umbrella of one or other of the major banks, the real impact on Australian consumers will devolve from how much of the platforms market is now controlled by just three big banks – Westpac, Commonwealth Bank and NAB/MLC.

While there have been suggestions that a fourth big bank – ANZ – has been considering acquiring IOOF, such speculation fails to take account of the state of the Skandia platforms acquired by IOOF last year.

While the ACCC examined and approved both Westpac’s acquisition of St George and, more recently, NAB’s acquisition of Aviva Australia, there is no evidence of the degree to which the regulator reviewed or understood the impact of the transactions on the platforms market.

Perhaps just as importantly, the ACCC decision took a company-only approach, rather than examining the division between the bank and non-bank sectors, taking no account of the number of platforms likely to shift under the control of one or other of the big four banks.

According to the ACCC decision on the Aviva Australia transaction, the regulator said it considered that the acquisition "was unlikely to result in a substantial lessening of competition in the relevant markets".

It said the factors informing this conclusion included:

the presence of a number of competing businesses in all relevant markets;
the dynamic and growing nature of the markets for the supply of investment platforms and life insurance;
the presence of external investment and superannuation options in the markets for the supply of investment platforms and superannuation; and
the presence of a large number of dealer groups and independent financial advisers that will remain unaligned and not under the influence of NAB.

The ACCC, had it closely examined the financial planning industry and the platforms market, would have understood that while the platform industry might be dynamic, it is certainly not "growing". It has been a long time since any new players have seen fit to launch a platform. Indeed, even the existing players have proven reluctant innovators.

If the ACCC had cared to examine some (at that time confidential) research from leading research house Wealth Insights, it might have adopted a very different view.

That research reveals that in four short years the ownership of Australia’s platform market has reduced from 15 players to just eight, and that the market is dominated by only two or three players. Indeed, if the ACCC were to consider the platforms primarily used by planners, one group would emerge as dominant – Westpac/BT/St George.

So, hypothetically, what would ANZ’s acquisition of IOOF achieve? Given the bank’s recent acquisition of ING, it might hand the group as much as a further 20 per cent of the adviser market.

The managing director of Wealth Insights, Vanessa McMahon, maintained that the importance of platform ownership could not be underestimated.

"A great deal of power resides with those who own the platforms, particularly the primary platforms," she said.

McMahon acknowledged the power of those who control the large dealer groups and planning practices, particularly where rebates and choice of products is concerned, but argued that ownership of the platforms themselves was pivotal.

"The platform market is very much in the mature phase of the market cycle making it extremely difficult, if not impossible, for any new competitors to enter this space," she said.

The fallout from the global financial crisis has seen that domination increase.

So what have recent mergers and acquisitions in the Australian financial services market meant for the platform industry and why should the ACCC be paying close attention?

The regulator might care to consider that in the event NAB/MLC gained control of AXA Asia Pacific, it would then control the following platforms:

Masterkey;
MasterKey Custom;
Navigator Plus;
Navigator Access;
Summit;
Generations; and
AXA North.

According to the Wealth Insights analysis, while this would give NAB/MLC control of platforms being used by a significant number of advisers, this would then need to be weighed against the dominance of the Westpac/BT/St George platform line-up, which includes BT, BT Wrap Essentials, Asgard, Asgard E-wrap and Asgard Equip.

Then, of course, there is the Commonwealth Bank’s much more streamlined but dominant Colonial First State FirstChoice offering.

In the event ANZ acquired IOOF, its presence in the platform space would be significantly extended by the inclusion of the IOOF and Skandia platform offerings on top of ANZ’s combined in-house and ING offerings, but it would remain well behind the dominant positions achieved by Westpac/BT/St George and Commonwealth/Colonial First State.

Given the state of Skandia’s platforms and the myriad of legacy technology issues that have confronted IOOF since the merger with Australian Wealth Management, some might have suggested ANZ would have been better served by looking at the synergies likely to flow from the acquisition of Perpetual – a company which, while moderately acquisitive, found itself struggling through the dark days of early 2009.

With Perpetual’s Wealth Focus having a solid foothold in the platform market and with the company boasting a strong adviser presence and a solid client base, particularly in the private clients arena, it would be unusual if the company had not been on the radar of some of the major players.

Fund manager payments breed scepticism

Money Management, 18 December 2009

Page 1
Mike Taylor

Ratings houses that rely on fund manager payments as their main source of revenue are not fully trusted by financial planners.

That is the bottom line of new research conducted this month by Wealth Insights, which also suggested some dealer groups might need to change the nature of their relationship with their research providers.

The research, which comes at the same time as a number of research house principals have been debating their commercial models, also pointed to the need for some of them to remove the perception that fund managers could actually pay for their ratings.

The Wealth Insights research found that 64 per cent of respondents either agreed or strongly agreed that a conflict of interest was likely to exist if research houses were paid by fund managers for their ratings.

Importantly, 26 per cent of respondents were neutral in their response, while only 10 per cent suggested that no conflict existed.

Wealth Insights managing director Vanessa McMahon said the result showed that financial planners were clearly concerned about the potential for a conflict of interest when research houses relied on fund managers as their main source of revenue.

She suggested that the problem ran even deeper for the research houses and the fund managers in circumstances where planners also held concerns about the ultimate impartiality of the ratings provided.

McMahon pointed to the fact that only 30 per cent of respondents believe research houses could offer impartial advice when fund managers paid for their ratings, with 29 per cent suggesting there could be no impartiality and 42 per cent being neutral.

She said in the focus groups that had accompanied her research, planners had concerns that fund managers were prepared to “buy a rating”.

McMahon said the degree to which planners were uncomfortable with existing researcher remuneration models was indicated by the fact that 45 per cent had said they either disagreed or strongly disagreed with fund managers being able to pay research houses for ratings.

Indeed, the Wealth Insights survey revealed that only 22 per cent of respondents agreed with such arrangements.

The research also pointed to a recent dampening in sentiment among financial planners as the rapid recovery in markets took a pause in October and early November. The Wealth Insights Adviser Sentiment Index, which recovered strongly between February and late September, showed a dip in October but remained in positive territory.

Product complexity abandoned

Money Management, 30 October 2009
Benjamin Levy

Financial planners are discarding complicated investment products because their complexity is preventing them from moving their clients’ investments quickly enough to take advantage of market upswings. The development comes at the same time as research just released shows that financial planners are dropping complex investment products and taking up simpler options instead.

Wealth Insights managing director Vanessa McMahon said research showed financial planners were abandoning complex financial products in favour of tried-and-tested products that followed cash or domestic equities.

She explained that financial planners were shifting to ‘vanilla’ products because they were unable to lift their clients’ assets out of complex products and back into the market quickly enough to take advantage of a market upswing, a view with which George Lucas, managing director of Instreet Investment, agreed.

“They have a lot more paperwork to do… so therefore, it’s a lot harder for them to switch out of equities into cash, and if they don’t have a fund manager who’s doing that for them, then it can take a lot longer to do the asset allocation,” he said.

Indy Singh, managing director of Fiducian, said the over-engineering of many products meant that financial planners were unable to retrieve the investments, and as a result, were abandoning complicated investment products.

Planners look to cut client costs

Money Management, 29 September 2009

Mike Taylor

Active managers may be amongst the first to feel the squeeze as financial planners look to reduce
costs to their clients without squeezing their own margins, according to new research by Wealth Insights.

The Wealth Insights research, conducted over the past two months, has revealed a subtle shift by planners in response to greater client awareness about fees, charges and commissions.

Wealth Insights managing director Vanessa McMahon said that her company’s surveying of financial planners as well as focus groups had revealed that there had been a definite squeeze on fees generated by both the global financial crisis (GFC) and clients’ increasing awareness of how planners are remunerated.

McMahon added that the planners had responded to this by looking to reduce their costs and then pass the savings on to their clients.

“I think one of the primary results has been that planners are now less interested in actively managed funds and more attracted to the lower costs offered by indexed funds,” she said.

“The view of clients, and therefore planners, is that if the active managers didn’t see the GFC coming, then why are they worth more than indexed funds?”

She said this trend was already being manifested in levels of demand for indexed products and exchange-traded funds, which offered lower member expense ratios.

“I think the changes have been subtle but are very likely here to stay,” McMahon said. “Planners have looked at where they can save costs, and there is a real attraction to an indexed product that has an MER of, say, 30 or 40 basis points when it is compared with an actively managed product that has an MER of as much as 110 basis points.”

She said that the trend away from actively managed products was easy to understand in circumstances where the performance of many indexed products had been as good or even better than the actively managed products.

McMahon said she believed it was likely the shift away from higher cost products would ultimately impact dealer groups in the form of lower rebates.

Sentiment returns to pre-recession levelss

Page 1, Money Management, 22 October 2009

Mike Taylor

The recessionary cycle and its impact on Australian financial planners appears to be over, but the psychological wounds are likely to linger, according to the latest data released by Wealth Insights.

The data reveals that the cycle of declining adviser sentiment coupled to financial failures and economic adversity began in February last year, reached its depths in February this year, and has now returned to the levels that marked the beginning of the cycle.

McMahon said while the most recent data pointed to a substantial recovery in planner sentiment, there remained sections of the industry deeply affected, not least those planners who had entered the business or acquired businesses just ahead of the downturn.

“In circumstances where they would have based their transaction on multiples of 3.5 times earnings, they have been badly affected,” she said.

McMahon said the recovery of the markets had also been particularly welcomed by planners operating in regional and country areas.

“Those guys were really feeling the impact in February and March,” she said. “In those small communities they tend to be much closer to their clients and it was clearly difficult for them when they found themselves running into clients in the street or in the supermarket.”

McMahon said while planner sentiment had now returned to more acceptable levels, some serious lessons had been learned and many remained extremely cautious.

“There is nowhere near as much confidence as there was 18 months ago, and many planners remain cautious,” she said. “That caution is particularly evident when you begin discussing asset allocation moving forward and goes some way towards explaining the popularity of domestic equities.”

McMahon said while domestic equities had emerged as the big winner, planners had indicated that they would not be jumping into riskier asset classes soon or advocating high levels of leverage to their clients.

“I believe the past 18 months have left an indelible mark on planners,” she said.

PJC fails to alarm planners

Money Management, 24 September 2009

Mike Taylor

The attitude of the planners stands in stark contrast to their industry organisations, which have devoted extensive resources to putting their policy positions before the various government inquiries.

Wealth Insights managing director Vanessa McMahon told Money Management that while planners were broadly aware of the issues being discussed by the PJC and some of the other Government inquiries, they were adopting a wait and see approach.

“Very few [planners] have suggested that the parliamentary committee discussions have prompted them to start changing the way they do business,” McMahon said..

However, she said there was broad recognition that commissions-based remuneration was likely to be impacted by legislative change and, as a result, the value of planning practices heavily reliant on commissions had been undermined.

“They are factoring in the demise of commissions and the multiples they generate,” McMahon said.

On the basis of comments received from planners, she said the practices likely to be worst hit were those with a higher proportion of clients with smaller account balances.

McMahon said on the broader question of what might flow from the Parliamentary inquiry, most believed that while there would be some changes, they would not be too dramatic and there would be plenty of time to make the appropriate preparations.

She likened the attitude being adopted by planners to their reaction to comments by the former Federal Treasurer, Peter Costello, when he suggested that changes simplifying superannuation would mean consumers no longer needed to consult a planner.

“They believed he was wrong then and they believe many of the current suggestions are wrong as well,” she said.

“The bottom line is that many planners regard themselves and the industry as adaptable and very few are actively doing anything in preparation for what is coming,” McMahon said.

Adviser sentiment rebounds

Page 1, Money Management, 20 August 2009

Mike Taylor

Most Australian financial advisers believe the worst of the global financial crisis is over, with sentiment having improved rapidly over recent months, according to the latest Wealth Insights Adviser Sentiment Survey.

The survey has also revealed that, notwithstanding improving sentiment, the bottom lines of financial planning practices have been hit hard, with more than 70 per cent acknowledging that revenue and profits have been impacted.

The survey, conducted in July, revealed that only 25 per cent of advisers now regard times as being ‘very bad’ or ‘bad’, compared to 36 per cent in May and nearly half in February. According to Wealth Insights managing director Vanessa McMahon, advisers are now significantly more optimistic in their outlook, with the mood shift reflecting the steady rise in equities markets over the past 12 months.

“The recovery in equity markets has calmed many distressed clients and worried planners,” she said. According to the Wealth Insights data, 53 per cent of the advisers surveyed now believe conditions to be ‘average’, while 20 per cent regard them as being ‘good’ or ‘very good’.

McMahon said while there was the occasional planner who believed the first six months of 2009 had been nothing more than a bear market rally, most were now generally positive about the future for both their clients and themselves.

She said this optimism was being reflected in views about the planning industry generally, with more than half describing conditions as being ‘mostly good’ or ‘continuously good’ and 40 per cent believing this was ‘both good and bad’.

Looking at broader sentiment, McMahon said advisers had far more confidence in the markets rebounding than they did six months ago, which she believed was the main factor behind their sense of relief and optimism.

The Wealth Insights survey showed that while 44 per cent of respondents were expecting average returns over the next 12 months, 33 per cent were expecting good returns and 3 per cent were expecting excellent returns. This represented a strong reversal on the position revealed in the December 2008 survey, when more than 50 per cent were expecting ‘below average’ or ‘poor returns’.

Where revenue and profits are concerned, the survey revealed that 29 per cent of planners had acknowledged revenue being a lot lower, while 44 per cent said it was a little lower compared with the same period a year earlier. Where profit was concerned, 33 per cent said profit was a lot lower, while 41 per cent said it was a little lower.

McMahon said almost all advisers had suffered a drop in revenue and profit and were reporting losses of between 20 and 30 per cent.

“The past 12 to 18 months have been very challenging for many advisers,” she said. “Some admitted that their personal take home income had reduced dramatically in the preceding 12 months, while others had to reassess their business models.

McMahon said it was advisers who had begun a new business in the past few years or bought an existing business who were feeling the most pain, because they were very reliant on new business as their primary source of revenue.

Meltdown takes heavy toll on financial planners

Money Management, 19 March 2009

Australian financial planners have revealed the deep distress they are feeling as a result of the global financial crisis and the impact it is having on their clients.

Their distress has been revealed in the latest research conducted by Wealth Insights in which, via focus groups and interviews, they have revealed the human cost of the collapse in markets and investment returns, which has included suicidal thoughts, lack of sleep and feelings of guilt and isolation.

Wealth Insights managing director Vanessa McMahon said her research, conducted through January and February, revealed that while clients were rarely blaming their advisers, those advisers were nonetheless sharing their clients' pain and feeling bereft at not having provided better advice.

"Advisers often feel a sense of responsibility for enhancing the quality of life that their clients can enjoy now and into their retirement," McMahon said.

She said almost half of the advisers she had spoken to for her latest research had experienced some sort of physical ailment that they attributed solely to their current stress levels.

What is more, she said these stress levels were being compounded by their perceived inability to know what was the best strategy going forward for their clients.

Among the comments collected by McMahon were, "I haven't had a good night's sleep in 12 months. I've never been so stressed in my life. I probably drink too much now."

And, "I've got shingles due to stress. You don't want to have to wake up in the morning and tell someone they have lost half their money."

The Wealth Insights research has also revealed brooding resentment at the quality and nature of advice being provided by dealer groups, some of which are tied to funds management businesses.

And another comment: "I'm very disappointed in the fund managers, [they all took] the view that this wasn't going to be so big and they told us to stay invested … you can't prove that they knew more, but I'm sure they did.";

The Wealth Insights research has also revealed that it is those advisers who established their businesses in the past few years who are hurting most and have the least knowledge about what to do..

Those who are acting to address their situation are being confronted by difficult choices, including having to accept the loss of a substantial portion of their investment in their businesses - something that has been revealed in comments such as, "I'm running at a loss. I've sold my boat and I'm about to sell an investment property. I've heard about other younger planners getting part-time retail jobs. I've thought about it too, and if I have to I will - I won't tell anyone."

And, "I've got to do something, I've got to merge, sell, tuck inside an accounting practice or something, everyone is talking to everyone".

McMahon said some of the hardest hit planners were those who had bought a practice in the past few years and paid a multiple of two and a half or three times revenue and were still paying off that debt.

"However, their revenue has dropped dramatically and worse, their business would probably only sell for a multiple of one and a half or two (of much lower revenue) today," she said.

McMahon said older, more established businesses were in a much better position to weather the storm.