Why do platforms exist?
Platforms connect our clients with investment solutions that create wealth.
Platform development has long been driven by adviser need to service their clients in the most effective manner.
It all began in 1924 with the advent of managed funds in Massachusetts. They have stood the test of time and now almost 100 years later are still a widely used investment vehicle providing clients with access to professional investment management IP.
The proliferation of managed funds in the Australian advice industry provided the background for the creation of Masterfunds, which solved the problem of mountains of paperwork and inefficient administration. Masterfunds provided a single product, menu of funds and consolidated reporting albeit manual for clients. They really drove the repositioning of the industry from one that sold product to one that serviced clients and enabled the movement from upfront commissions to ongoing advice fees.
Then came the mid-1990s and driven by government regulation personal super as we know it replaced approved deposit funds and allocated pensions arrived. Super, then became a core component of Masterfunds.
In the late 1990s direct share ownership became popular and the Wrap platform was created. The internet also arrived in the 1990s and forced wrap providers to go online providing web portals, online transacting and real-time reporting. By now the platform was embedded in adviser businesses.
By 2010, the industry was largely dominated by institutions and platforms became homogenized. There was very little investment in platform development. The concept of managed accounts has been around since the 1970s but take up in Australia was poor. The tipping point came with the availability of new technology and FOFA. FOFA forced the creation of new revenue streams. Managed accounts also provided additional efficiency benefits for advisers and their clients.
So, what does the future look like?
1. Managed accounts
We've really just scratched the surface. There are a couple of trends that will drive continued growth in this area.
Firstly, automated personalisation. This will provide the ability to structure an algorithm which takes individual client preferences and circumstances into account when performing a rebalance. This will deliver a customized client outcome that will further help advisers support their best interest's duty.
Secondly, algorithmic models. We're already seeing the expansion of algorithmic models through passive investment vehicles like ETFs - S&P run 1.2m indexes a day and MSCI around 300,000. AI will put this on steroids
2. The disruptors
In 2017, 33% of platform inflows went to non-aligned platforms that represent 3% of the industry, and its' only the beginning. New players are coming and none of us can rest on our laurels.
As Mike Cannon-Brooks founder of Atlassian recently stated 'The question is: Are software companies going to figure out how to move into industries faster than the industries figure out how to be software companies?"
A recent example; Alibaba launched a fund 4 years ago which now has 370,000 investors and 221bn funds under management. Many have suggested that it would be too hard for the likes of Amazon and Facebook to enter the market here due to regulation. That may be true in that they probably won't go all out and get a banking license, however, they will find ways to chip away at certain segments of the market where clients are dissatisfied and looking for alternatives.
Additionally, robo-advice is predicted to hit $7 trillion by 2025. The opportunity for robo is in the DIY market - for those who want advice but don't know how to get it or can't afford it. In the future there will be less advisers servicing more clients, it's up to platform providers to connect advisers to the best technology solutions to enable that.
3. Integration - Open architecture
Increasingly, platforms are removing the barriers of entry and becoming safe custodians of data to deliver true consolidated reporting. This will allow advisers to design their own technology ecosystem with their favourite platform, favourite CRM, rebalancing tool and client engagement tools. However, this won't work unless platform providers are proactive in connecting all the parties together.
With the addition of AI efficiency and better investment solutions will increase exponentially and it won't be about man vs. machine but man with machine vs. man without.