An unintended consequence of increasing bank regulations, such as Basle III, is that retail investors can get better rates for some deposits, such as cash, than the big scale-conscious funds. And, with the new-style member-directed platforms, they can have the best of both worlds.
Ian Dunbar, head of investment platforms for UBS in Australia, says that banks have to put aside more capital for “less sticky” money.
“Basle III penalizes banks for holding what is considered more risky, wholesale, deposits… But through the platform, such deposits are deemed to be retail. The difference can be 90-100bps. By getting competition into the platform the fund gets a better outcome.”
UBS has a venture with systems provider FNZ and introduced its first member-directed platform to AustralianSuper early last year. Telstra Super and HostPlus are imminent. Dunbar said other big funds would soon follow suit.
“From a platform perspective, you have to have competition in products such as cash and term deposits. For each super fund we can connect to any cash provider and any term deposit provider.”
The UBS/FNZ platform has already integrated with ME Bank, NAB, BOQ, ANZ and Rabobank for term deposits, providing a broad suit of options for funds.
As an example, AustralianSuper moved its cash to ME Bank for the platform and the members got a 50bps improvement in their returns straight away.
The platforms are currently solely in $A, but in future, Dunbar says, they will offer multi-currency capabilities. This will allow more price tension for FX, which has traditionally been an overlooked and high-margin area.
Patrick Liddy, chief executive of MSI Group, who advised Telstra Super on its choice of platform and implementation, said: “The largest super funds are now able to still exploit their size with managers and other providers, while their individual investors are able to get better cash and term deposit rates. There’s been a systemic change, mainly because of Basle III.
“There are no soft dollars and this means that someone like Telstra Super, HostPlus and AustralianSuper can get 130 basis points better for their members.
“Other smaller funds are unable to exploit these opportunities and are left with offering their members lesser rates due to soft dollars or opaque platforms.”
MSI Group, which has advised a range of funds on better use of their cash, introduced the retail cash hub concept.