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Platforms’ role expanding thanks to tech advances, falling costs and advice gap
Platforms, already integral to investing, are evolving to play a key role supporting the delivery of advice, freeing advisers to spend more time with their clients. As technological developments add efficiency, platforms and advice are likely to become even more integrated and, the industry hopes, help more Australians work toward better investment outcomes.
Speaking at the Morningstar Investment Conference on Tuesday, HUB24 director of strategic development Jason Entwistle (pictured, left) and Peter Labrie (pictured), head of retail platforms at Colonial First State, discussed how investment platforms are meeting the evolving needs of the investor and the major trends they see playing out around platforms.
According to Entwistle, thanks to the growth of platforms, advisers today are doing less portfolio management, focussing instead on other aspects of advice. “In the past, there was a really big focus of investors on research, construction tools, portfolio construction and the trading tools the platform provided,” he said.
“We’re increasingly seeing that advisers want to focus on engaging with their client, the strategy around the client and their advice, and leaving the monitoring of the investment, and the setting and rebalancing of strategy, up to the automated tools we now offer.”
Efficiency and scale
Platforms lend themselves to efficiencies, and as they reach greater scale they can commoditise more elements such as administration and custody. “That focus on efficiency is super important from a platform perspective; every basis point matters,” Labrie said. “We need to try to do it as efficiently and effectively as we can.”
And while Entwistle said it’s not just about the basis points, he acknowledged the appeal of a constant move towards lower costs.
“We’ve been able to share benefits with clients as we scale up and those fees drop,” he said. “The fees will continue to fall in the natural course of the industry getting larger and new technology making things more efficient.”
Labrie agreed that lower prices driven by scale will support platform growth, especially as technology continues to improve and increase cost-effectiveness. “But, ultimately, it’s about value for the services provided,” he added.
That’s important at a time when investors are trying to get more bank for buck out of their fee budgets by thinking carefully about what they’re spending on investments, with many focussing more on the index and using their fee budget elsewhere for more alpha-generating assets, such as private equity, private debt and concentrated equities.
Among other rising trends is an increased focus on having a managed account component, Labrie said, citing efficiency and portfolio implementation benefits. Entwistle observed that about 80 per cent of advisers use managed accounts in some way. But he also sees groups moving away from managed investment schemes to other options that suit their business. “Ultimately, it’s a very similar result delivered, which is an efficient implementation of the investment strategy.”
And while most of the focus in platforms is now on mass customisation, Labrie said, they also have the capability to take in a manager’s preferences. “It’s all about creating those structures, enabling them, and efficient implementation.”
Enabling advisers and advice
All of these developments have supported the role of platforms as an “enabler” that helps advisers do their job more efficiently, according to Labrie and Entwistle. With lower numbers of advisers and the cost of advice going up, that will have follow-on benefits.
“That’s not a good environment, when you think about mass Australia getting advice,” Labrie said, citing data showing only about one-third of Australians will get retirement advice over the next decade. “I think it’s really challenging for middle Australia to be able to respond to that. We have this advice gap that’s looming, and we need to do something to address it.”
“It’s a sad state of affairs when something like 10 per cent of Australians are able to afford advice,” Entwistle said. “Ultimately, when people get advice, they end up with better financial futures and less reliance on the age pension. It is incumbent on us all to help solve that advice gap problem.”
