Investment Platforms Suffering Exodus

Australia | Jul 02 2019

In the fallout from the Royal Commission, investment platforms are suffering major funds outflows. Not all, however, are losers.

-March quarter sees funds fleeing platforms
-Independents gaining share from majors
-Near term margin pressures weighing on performance

By Greg Peel

At the end of 2018, Australian investment platforms were administering $811bn of investor funds. Platforms cater for superannuation and non-superannuation products and provide the ability to acquire, hold and administer a range of investments as well as provide comprehensive reporting to clients and advisers.

Of that total, the big five banks and AMP ((AMP)) boasted a net 83% of funds. The balance was held by smaller, independent platforms.

The $811bn total at the end of December represented a -$933m net outflow of funds over the December quarter. Outflows can occur for two reasons: either the investor wants to take funds out of the market, or the investor wants to remove those funds from that platform to either move them elsewhere or simply manage funds personally.

Funds outflows in the December quarter could be attributed to the fact the ASX200 lost -9% in the quarter, as global stock markets tanked, prompting selling. However the ASX200 rallied 9.5% to the end of March, yet March quarter funds flow data, the most recent released by ASIC, showed a net -$2.7bn in platform outflows.

That’s the weakest quarter since 1991.

The Fallout

Clearly it’s not about stock market performance. Rather it is about the Royal Commission, and all its ramifications. Not only are disgruntled investors bailing on investment platforms, in light of RC horror stories, the number of financial advisors on platforms is rapidly diminishing.

RC reforms have meant advisors have lost what were previously grandfathered commissions. In other words, a big chunk of income. Cause enough for more veteran advisors to call it a day. Moreover, as of January 1 this year advisors were required to satisfy new education standards, not only discouraging existing advisors but also raising the bar for any aspiring newcomers.

Over the five months to May, reports UBS, the total number of advisors exiting the market numbered 628 or -2.2%. The major financial institutions collectively lost 439, or -5%, reducing their advisor market share to 30%. With Westpac ((WBC)) set to exit from advice, losses can only grow.  AMP and IOOF Holdings ((IFL)), the two biggest advisor groups, lost 99 and 21 respectively. Commonwealth Bank ((CBA)) and its funds management business Colonial First State lost 128.

Independent financial advisors lost 189, or -1%, despite an influx of advisors previously with the major platforms.

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