Advisors adopt plug-and-play approach to admin

Grahame Evans
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(Pictured: Grahame Evans)

A white-labelled platform used to cost over $250,000. Today, advisors can get one for a fraction of the price – that’s if they still want one, Grahame Evans* writes. He believes that the ‘power’ in the platforms space in the industry is shifting, thanks to technology and changing customer demand.

It wasn’t that long ago that institutionally owned platform providers charged independently owned mid-tier dealer groups upwards of $250,000 to build a white-label platform. (Anecdotally, there’s still one major player who believes $500,000 to $1 million is a fair price to badge their platform.)

That exorbitant price didn’t even come with customisation or efficiency. Instead, advisors typically had to compromise and curtail their investment and administration requirements to comply with the platform’s rigid rules.

There was limited flexibility to build a tailored menu with additional managed funds, direct equities and bespoke model portfolios. Consequently, white-labels mirrored the platform’s own approved product list.

That has been slowly changing. The position of power is shifting. Not only are investors and advisors increasingly bypassing platforms and using alternative investment structures such as managed accounts which can hold a wide range of listed and unlisted assets, they’re also demanding customisation and better service from platform providers at a heavily reduced price.

Innovative and resourceful licensees are developing model portfolios based on their own investment philosophy and intimate knowledge of clients, and they want these options readily available on their white or private label platform.

Technology is making it possible. It’s lowering the cost of investment administration, and daring advisers to believe that they can build their own proprietary solutions if existing platforms aren’t improving their functionality quickly enough.

Technology is empowering advisers to license software and partner with specialists to develop specialised solutions with minimal investment spend where they see a gap in the market, where they have the competency and insight, and where they believe they can gain a distinct competitive advantage by having a unique solution. For everything else, they can continue plugging into existing, generic offerings.

Under a ‘plug and play’ approach to investment, administration and financial planning, advisers won’t need to settle for a sub-standard service. They’ll be able to combine a number of internal and external systems which will ultimately talk to each other. Rather than buy one, aggregated solution which tries (and inevitably fails) to be all things to all advisors, each underlying component part will serve a specific purpose well.

The trend away from aggregation towards disaggregated solutions will ultimately impact on front-end software providers too.

It’s very different to how things have historically been. Platforms were originally invented to allow investors to move from one investment to another without being hit with exit fees, entry fees, capital gains tax and other penalties. The early models created by AM Corp and Asgard in the mid-1980s were limited but over time new players and new technology saw platforms develop additional functionality including broader access to wholesale managed funds, restricted access to direct equities, tax reporting and practice management tools.

However, changing investor and adviser needs, technological advancement and the end of platform rebates, is threatening the dominance of platforms.

At the same time, ongoing regulatory reform and a string of scandals within the banks and institutions have spurred independently-minded advisers to move away from their total reliance on the institutions to build and do everything for them.

Some licensees, including GPS Wealth, have turned to alternative investment structures. They have developed their own investment philosophies, established independent investment committees with external experts, and implemented a managed account platform.

This is not just for large independently-owned dealer groups. Size is no longer an obstacle to innovation and a growing number of small self-licensed practices are also going down this route.

While the take-up of alternative investment structures like managed discretionary accounts is still relatively low, there have been enormous inroads in the last few years. The early adopters will reap the rewards of increased efficiency and productivity.

However, there will always be late bloomers. Part of this reason is that the benefits and features of managed accounts are still poorly understood and appreciated. Furthermore, advisors are comfortable with platforms, they’ve trained their staff to use them and change can be slow and painful. This will ensure platforms continue to serve a meaningful purpose in the short-to-medium term.

Over the next five to seven years, that will change. Technology moves quickly.


*Grahame Evans is managing director of GPS Wealth. He is a speaker at the upcoming My Platform Rules conference starting today (February 23).

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