Investment Platforms
The shake up of the investment platform industry
We are seeing a shake up in the investment platform industry.
There is $840 billion sitting on technology investment platforms used by wealth managers to execute trades and manage investments on behalf of their clients.
Investment platforms allow investors, big and small, to view and trade investments through one digital portal.
They can also assist investors and their advisors with tax and regulatory obligations.
The big four banks still maintain their decade-long stranglehold over wealth platform market share, despite their stated intention to retreat from the troubled sector since the Hayne royal commission.
All four of the majors are now in varying stages of exit from their wealth operations.
The exit of the banks has triggered multibillion-dollar outflows from their respective wealth management platforms, used by financial advisers to manage assets and execute trades on behalf of clients.
There is a significant amount of money in motion, which present a number of opportunities.
Specialty platform providers Netwealth and Hub24 have continued their incredible rise, their upward trajectory continues, while challenger Praemium has also begun to capitalise on the big bank outflows.
BT - Westpac - $165 billion Funds Under Administration
With Panorama representing - $50 billion - 115,000 investors, 3,500 advisors - which sets a solid foundation for Westpac.
Panorama is the new technology platform, that BT/Westpac legacy products are currently being migrated to. Panorama offers a competitive product from price, investment menu, and technology perspective, that has a large financial advisor usage.
Westpac has engaged Morgan Stanley to find a buyer for their investment management arm of the business.
Colonial First State - CBA - $133 billion Funds Under Administration
CBA sold a stake in its business, Colonial First State, to KKR. That deal is due to complete in coming months.
CFS is an older platform that has an enormous amount of legacy money.
In recent years, CFS has spent millions to try to keep up with the new players, however the technology hasn’t moved as quick as some of the other providers.
Macquarie Wrap - Macquarie Group - $100 billion Funds Under Administration
Added $21 billion in assets to its platforms, which is up 26% since March last year.
Macquarie Wrap are uniquely placed between the large institutional players and the specialty providers.
Again, Macquarie Wrap is another provider that has a huge amount of financial advisors that use their platforms.
AMP - $138 billion Funds Under Administration
Declined 6.3% as financial advisors continue to pull client money out of the company amid its self inflicted cultural crisis
AMP are in a world of pain with their current management issues.
However, AMP North is one of the leading technology platforms.
One of the reasons AMP went after AXA so many years ago, was to get their hands on this technology and platform
NetWealth - $41.8 billion
Experienced 34% annual growth over the past 12 months.
Benefiting from the billions in outflows from AMP & the big four banks.
Net Profit after tax $27.6 million for the first half of the financial year.
NetWealth Market Cap: $3.6B
Hub24 - $51 billion
Experienced a 32% increase in funds under management over the past 12 months.
Benefiting from the billions in outflows from AMP & the big four banks.
Net profit for the first half of 2020 $6.1 million
HUb24 Market Cap: $1.68B
Praemium - $34 billion Funds Under Administration
Praemium reported a 69% jump in funds under administration for the half year to December 2020, following the acquisition of PowerWrap.
Powerwrap operates in the “off platform” division such as stockbroker accounts, which amount to about 22% of all wealth. Put another way, Powerwrap is the leading independent platform for private wealth clients.
Praemium's international business, primarily in Britain, had a “breakout quarter” after successive periods of disappointing results abroad, which had dragged on its share price, while increasing its exposure to the pandemic.
Our UK operations had their best-ever quarter. We want to get our international business into profitability, which is on track to happen in the not-too-distant future. The market is there for the taking.
“We really are the platform for everything now, whether the investors are retail, high net worth individuals or on or off platform. We think we could meet the needs of any financial adviser and their clients, wherever they may be.” Head of investment platform Michael Ohanessian explained.
Whilst also benefiting from the billions in outflows from AMP & the big four banks.
Net-profit after tax grew 113% to $3 million for the first half of 2020.
Praemium Market Cap: $381m
MLC- NAB - $117 billion Funds Under Administration
NAB ran an auction for its wealth management unit MLC, and saw interest from IOOF Holdings, private equity firms JC Flowers, The Carlyle Group, and Apollo Global Management.
They are awaiting the finalisation of this process by 30 June 2021- which is set to be IOOF. However, with the distribution arm (being NAB/MLC advisors) now gone, we will continue to see outflows for the underlying MLC platforms.
IOOF - IOOF/OnePath/ANZ - $76 billion Funds Under Administration
IOOF’s assets under management took a $2.1 billion hit after financial advisory firms deemed undesirable were terminated in chief executive Renato Mota’s purge of the wealth management network.
IOOF have realised what affect the financial planning distribution arm of their business has on their Funds Under Administration. However, unlike other financial institutions, IOOF CEO has deemed that “undesirable” advisors pose a significant risk and the loss in FUA is the result of his risk mitigation decision.
Investment Trends' latest platform survey found HUB24 ranked first for its functionality, followed by Netwealth, Praemium, BT Panorama and Macquarie Wrap.
A recent Rainmaker report found that bank and institutionally aligned platforms remained favoured among advisers.
Colonial FirstChoice tops the chart, housing 10,072 advisers with an 11% market share. AMP Flexible Lifetime (6876), Perpetual WealthFocus (5992), Asgard (5477) and BT Wrap (5208) make up the top five most-used platforms.
Outside of the major platforms, Netwealth owns the biggest market share at 2.5% with 2371 advisers, while HUB24 has 1790 advisers and a 1.9% market share.
With the major banks and possibly AMP jumping out of the investment platform industry, this provides a significant opportunity to not only consolidate the industry, but also for those leading players to take advantage of the gap in the market.
We see a continue shift away from platforms that are aligned to banks or have mandated financial planning distribution arm, like AMP/IOOF.
Furthermore, we will see a greater push on administration fees with more international players set to come into the market with the carrot of getting a piece of the trillion dollar superannuation industry. Which may result in declining revenue margins in the platform business.
For investors there may be a few opportunities to benefit from the big players bowing out of the space and the smaller players continuing to grow by 30% + per annum.
Sources:
https://www.afr.com/companies/financial-services/macquarie-picks-up-20b-as-big-banks-exit-wealth-20210428-p57n5y
https://www.afr.com/chanticleer/westpac-s-new-operating-model-20210503-p57of3
https://www.afr.com/street-talk/westpac-hires-morgan-stanley-for-super-platforms-sale-20210503-p57oj6
https://www.afr.com/wealth/personal-finance/investment-platforms-face-fee-challenge-20210328-p57eqa
https://www.afr.com/companies/financial-services/the-second-coming-of-westpac-s-pano-drama-20210120-p56vno
https://www.afr.com/companies/financial-services/praemium-claws-1-1b-in-investor-funds-20210113-p56tts
https://www.afr.com/companies/financial-services/marched-financial-advisers-rip-2b-out-of-ioof-20210429-p57ncv
https://www.financialstandard.com.au/news/adviser-numbers-at-five-year-low-179472048?q=%22Netwealth%22
https://www.financialstandard.com.au/news/firstchoice-dominates-platform-market-179557822?q=%22Netwealth%22
https://www.financialstandard.com.au/news/netwealth-fua-crosses-40-billion-179375650?q=%22Netwealth%22
https://www.financialstandard.com.au/news/praemium-expands-distribution-footprint-179187589?q=%22Netwealth%22
https://smallcaps.com.au/what-to-look-out-for-investment-platform-sector-feeds-on-itself/
https://www.afr.com/companies/financial-services/praemium-claws-1-1b-in-investor-funds-20210113-p56tts