Platforms: high street or haute couture?

This week’s Trialogue draws on the inaugural Tria Australian Wealth Insights Programme.

The Programme is an annual study based on face-to-face interviews with more than 200 influential advisers and licensees and provides valuable insights into the advice process, asset allocations, business models and views and preferences relating to lead platforms.

One specific area of interest is advisers’ current and anticipated future platform usage. The gradual shift of HNW advisers off-platform has been underway for some time now.  And as you can see in today’s first chart, the trend that began with ‘High Net Worth’ advisers is starting to bite in the ‘Affluent’ segment as well.

Current adviser platform use vs expectations of future use

The segment of advisers targeting Affluent customers expects to reduce their FUA on platform by close to 10% over the next 3 years.

Let’s be clear, platform usage is and will remain strong across all advice segments, however the projected reductions have meaningful implications in terms of assets and revenues.

If advisers behave in the way they expect, the shift in the Affluent segment alone will create a $10b hole in platform FUA by 2018; when we take into account the other segments as well this rises to a $22b gap from the current position.

So what’s really happening?  Where are these advisers moving their business to?

Analysis of the interview responses from the Affluent segment advisers shows four key themes:

  • Direct holdings – advisers are increasingly holding direct equities and ETFs off-platform, even if it means fragmenting client portfolios
  • Substitution – at the top end, advisers are continuing to make full use of their desktop software applications including investment portfolio consolidation, for some removing the need for traditional platforms
  • Industry funds – industry funds are increasingly being used for smaller or simpler client segments (eg for ‘friends and family’ of the primary client)
  • SMSFs – advisers who are growing their SMSF businesses have a lower propensity to use platforms

In a situation of declining growth and intense competition, platforms should be seeking to clearly differentiate from each other in the minds of advisers.  The good news is that there is plenty of ‘clear space’ for platforms to do just this.  The chart below (also from the Tria Australian Wealth Insights Programme) maps platform providers based on adviser perceptions of overall strength of offer vs price.

It shows plenty of clear space in terms of available positioning.  None of the platforms are perceived as being cost leaders (low price/low strength of offer) nor premium competitors (high price/high strength of offer).  There is a group of platforms – the ‘share seekers’ – with equally strong offers who have also reduced their price, competing with to the second group – ‘profit maximisers’ – who are disappointing the market with an inferior offer whilst simultaneously pricing at a premium. This analysis is useful not only for identifying where platforms are positioned as much as where the ‘clear space’ positioning opportunities exist.  And there are two clear gaps: firstly the (high street) cost leader and secondly the (haute couture) premium competitor.

Platform providers have an opportunity to respond to the trend to shift advised monies off-platform through either:

  • Making material reductions in cost to service (and passing these on to customers), for example through reducing complexity (no, we aren’t pretending this is easy to achieve); or
  • Enhancing the value proposition to clearly differentiate their offer from the pack in those areas that drive adviser behaviour (also not easy to achieve without committing to eye-watering capital spend).

Platform operators will need to consider their next strategic move carefully before deciding to remain with the crowd, move premises to the high street or open a haute couture boutique.  But the opportunity to be a first mover might not be available for long.

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