What’s driving platform investment? 30bp margins, that’s what

The Australian platform industry is consolidating but there is a good reason why it remains a key investment focus for both established players and private equity – revenue margins of around 30 basis points.

In the wake of HUB24 acquiring Xplore Wealth and more recently Class Super, with Netwealth having made an initial bid for Praemium, with the Commonwealth Bank about to exit its stake in Colonial First State (CFS) and with Westpac putting BT Panorama on the sales block, the consolidation appears to be well on foot.

But it has taken Praemium’s chief executive, Anthony Wamsteker to outline the financial dynamic including that while financial advisers had largely migrated out from under the banks the platform migration out from under the banks was still to occur.

And amid the continuing consolidation, CountPlus chief executive, Matthew Rowe suggested that advisers needed to take care with respect to their selection platforms on the basis that some were likely to be acquired by competitors.

Addressing the company’s annual general meeting, Wamsteker placed the size of the addressable market in Australia at being $6 trillion of which much of it is advised with the platform market serving $965 billion or one-sixth of the market.

“This segment of the market is the most difficult to administer – far more complex than managing the bank deposit, managed fund or share trade,” he said. “But the complexity is worth it for financial advisers and their clients. It uniquely provides for individually customised portfolios, efficiently deliver across their whole client base. It allows for true engagement between advisers and their clients,”

Wamsteker said that, as a consequence of this, the platform segment carried the highest revenue margins – “around 30 basis points and above across the platform market”.

“It is the most desirable and lucrative segment within the overall wealth administration industry,” he said.

Wamsteker said that in recent years had moved en masse away from the major banks and insurance companies and that only about 20% of Australia’s financial advisers were now licensed by these “traditional institutions”.

“Yet 70% of platform assets are still on the legacy platforms that initially captured those assets when the, now discredited, virtually aligned financial services model was still in vogue. The platform migration lags the adviser migration by many years. The bulk of the transition is still to come.”

Asked to comment on the state of the platform market, spokesmen for major financial planning licensees largely agreed with Wamstaker’s analysis noting that the Commonwealth Bank was exiting the CFS platforms and that Westpac had placed BT Panorama in its “for sale” column.

They said that at the same time, the IOOF platforms including those acquired from MLC Wealth were seen as being part of tied distribution arrangements with a similar view being taken with respect to AMP’s North platform.

Rowe said the consolidation occurring in the platform market was significant and that it had meant advice licensees and their advisers focusing on functionality, open architecture, data feeds and the strength of the platform company’s balance sheet.