Will deep pockets now trump tech in platform land?

ANALYSIS

If the major banks are missed in the financial planning sector for one particular reason it is possibly because of their capacity to pay their way out of trouble when things went wrong.

And Macquarie Investment Management reminded everyone of the power that goes with scale and institutional grade deep pockets when it agreed to pay investors burned by the collapse of the Shield Master Fund 100% of the amounts they invested less any amounts withdrawn.

In this context, it is worth reflecting just how much and for how long the Commonwealth Bank has underwritten client compensation for Count Financial after selling it to Countplus (now Count Limited) in 2019, and how much National Australia Bank (NAB) and ANZ anted up with respect to their former advice businesses.

When it comes to investment platforms, institutional ownership is still a factor, with Macquarie and Westpac (BT Panorama) still being platform owners alongside AMP, Insignia and Colonial First State, albeit that CFS is predominantly owned by private equity.

For the past decade, Netwealth and HUB24 have been acknowledged as the nimble and fast-growing challengers to the institutionally-backed platforms with recent reporting pointing to them each having surpassed $100 billion in funds under administration.

The growth rate of Netwealth and HUB24 was claimed to be 25%, compared to an industry average of 7.3%.

We know from the data collected by businesses such as Padua Solutions that financial advisers use multiple platforms with their preferences often influenced by the technical sophistication of the platform offerings and how easy and cost-effective they are to use.

However, nowhere in the various analyses is there significant mention of advisers taking into account the depth of capital underpinning the platforms and how this translates to client best interests in the event of something going wrong.

It is worth reflecting that, with the exception of Macquarie, none of the institutionally-backed platforms are reported to have had exposure to either the Shield Master Fund or the First Guardian fund.

That is probably attributable to the fact that they had in place well-tested processes to filter out funds they regarded as having inadequate track records and barely investment grade ratings.

The institutionally-backed platforms have lost market share to more nimble and technologically adventurous rivals. That may change in a post-Shield, post-First Guardian world.