The rise of the independents… ‘Wexit’, disruption or something more?

With fewer advisers to service more clients, the need for efficiency and scale has never been greater. There has also been a renewed focus on the increased cost to produce advice – and the impact of SOAs and ROAs – and how this ultimately lifts the overall cost of advice to the consumer, making it less affordable for many.

This situation is compounded by a number of other challenges for advisers. First is the intergenerational need to engage the (typically lower balance) children of clients – who ultimately stand to inherit the wealth. As well as the need to maintain much greater profit margins to maintain the financial planning business’ valuation.

One of the primary solutions in the advice value chain is the investment platform. The ongoing challenges facing financial advisers serve to highlight the importance of the platform’s role in increasing efficiency, driving down costs of advice, increasing practice profitability and providing intergenerational low balance solutions.

Prior to the royal commission the bank-aligned platforms were for the most part growing in their share of the market. But the Adviser Ratings’ 2020 Australian Financial Advice Landscape report, an annual study of the Australian financial advice industry that includes a ranking from advisers of various attributes of the investment platforms and industry service providers, shows a distinct shift in choice of platform.

In the report, advisers rated WealthO2 the number one investment platform in terms of ongoing adviser support, and the number one provider in terms of investment options. WealthO2 was also voted in the top three, out of 20 providers, in net promoter scores, and number three in overall functionality preceded in both categories by Netwealth and HUB24.

What these findings serve to illustrate is that advisers are moving away from the bank-aligned offerings, and moving towards the platform independents. Further proof of this move is shown by platform inflows, which have shown a consistent flow towards them.

While this shift away from the legacy-aligned platforms could simply be a result of advisers leaving the bounds of vertical distribution channels, it is more likely because the newer independent entrants to the platform space have a better focus on adviser needs.

Anecdotally, advisers are indicating that the customer has been raised to the forefront of the service by the independent platform providers, while the legacy platforms have been focussed elsewhere. Whilst ROA generation and managed accounts assist in the efficiency, adviser support and client experience – coupled with the significant investment in the technology – these are key to the shift towards the independents.

As well, when it comes to lowering advice costs and increasing practice profitability, only the newer technology platforms can afford to shift the margin from product-led/ product-paid, to advice-led and advice-paid. Platforms that haven’t kept up with the latest developments in technology, have a higher cost of operation that is often recouped through hidden or layered fees.

The new generation of platform – often referred to as the fourth generation – is not only client-centric, delivering efficiency and scale, but is one that uses technology innovation to make advice more affordable, advisers more profitable and replaces revenue bias from products to service.

Shannon Bernasconi, managing director, WealthO2