Platforms – are they worth the cost?

News this week that investment platform operator Hub 24 (ASX:HUB) had acquired SMSF service provider Class Super (ASX:CL1) marks the latest nadir in an arms race that has been going for decades.

The deal is a no-brainer for Hub 24, which gains access to a business in Class that manages more data sources than almost every other provider in Australia. Class is widely known, or at least widely used, in Australia by the massive self-managed super fund (SMSF) sector, but in particular by financial advisers and accountants, with a large portion of annual tax returns prepared using its software.

Hub24 on the other hand, is a little less well-known, at least as a company rather than a fast-growing mid cap stock.

So, what does Hub24 do? Hub24 is an investment platform or ‘administration service’ that allows investors of all shapes and sizes to outsource the paperwork and other menial tasks that come with investing. The culmination of this is consolidated taxation reporting from a single, audited source.

Platforms allow individual investors, SMSFs and trusts to benefit from the type of corporate efficiencies afforded to institutions, with the ability to hold every asset type from shares to funds, ETFs and term deposits in the same place with the support of a professional custodian. Ultimately, they are an aggregation tool, allowing investors to pool their capital with others, whilst retaining ownership of their assets, to access a broader range of investments.

In terms of the superannuation sector, platforms play an important role in filling the gap between fully outsourcing investments to industry funds and fully controlling decisions via an SMSF. Platforms offer both superannuation and investment-only options, through which investors (or financial advisers) can invest their super in a broader range of investments than they could via an industry fund or if they were investing directly, but without all the paperwork and responsibility that comes with running your own SMSF.

Platforms have been most popular with financial advisers for many reasons, with the five most powerful as follows:

• Consolidated portfolios – Platforms are somewhat like a magic pudding. For those investing into direct shares, managed funds, term deposits and overseas shares, the paperwork received on a weekly basis would fill recycle bins. The majority of platforms allow investors to hold every type of investment in a single account and only receive one consolidated statement each year. This ease of administration broadens the investment horizon for the masses.
  
• Tax reporting – Expanding on the consolidation of multiple investment types into a single account, is the ability to receive a single tax statement for every investment, every year. There is no need to lodge tax file numbers with a range of institutions, completed multiple W8BEN forms or audit the receipt of dividends.
  
• Security – One of the less appreciated and misunderstood benefits of the platform structure is the protection and security it provides. Under a platform, investors’ assets are held by a custodian, in a similar way that an institution or fund manager would manage their assets. Under this structure your investments are audited on a daily basis and cannot be transacted without your authority. Importantly, there is a clear separation and registration of your interests, making it much more difficult to steal data or information.
  
• Control without responsibility – As highlighted above, platforms offer a midpoint between outsourcing the investment of your savings completely and controlling every decision via an SMSF. Platforms offer access to a broad range of investments, generally extending into the 1000s across multiple asset classes, but with some restrictions. The benefit is that the client is free to choose from that broad range of investments, without the responsibility of assessing every product available. The trustee and custodian will only offer access to those considered appropriate for their customers.
  
• Access – Finally, the pooled nature of platforms afford everyday investors access to a broader range of asset classes and investments; these are called wholesale investments. There are two key benefits of this accessibility. The first is the fact that most institutional or ‘wholesale’ investment options have a lower management fee than the options offered directly to retail investors. The second is that the platform can offer access to investments to which someone investing less than $500,000 would typicallynot have access.

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.