News & Events
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Platform switching paving a better way for clients

Published on
January 30, 2024
Anne-Marie Esler
Co-CEO & Co-Founder

Almost all financial advisers now use platforms to build and administer investment portfolios for their clients. Their use of technology, automation and mobile friendly interfaces can provide better service and more fully engage advised clients.

Although some advisers might want to switch to a new platform, the reality is that it can be a complex and time-consuming exercise. Scrutiny of the existing platform(s), the potential new one and alternatives, is essential and that must include consideration of efficiency benefits and fees, though the latter alone should never govern the decision to switch.

The good news is that greater competition has encouraged fee compression between platform providers. Services are better too. Platforms are constantly improving their offerings to include more product selection, more comprehensive managed account services, and more efficient reporting and transaction processing. So, whether to switch platforms is an ongoing question that advisers should be addressing.

Yet many advisers are reluctant to embark on this investigation because the impediments to switching platforms can be huge.

Most advisers are time-poor, and the effort required to move can be significant. Advisers are required to meet additional regulatory requirements, within the Statement of Advice (SOA) document when recommending a switch,  and they may also need to assist clients with completing application forms, in-specie transfer forms, death benefit nomination forms etc, not to mention carrying out the implementation of the advice.

All of that can be very time consuming and detract from an adviser's core business of giving value-add and wholistic, financial advice. Capital gains tax implications or other hurdles such as insurance being held within a specific superannuation platform can also prevent a client from easily moving between platforms.

In addition, the focus for existing platform comparison tools in this 'best interests' regulatory environment has been on price rather than both the price and benefit, arising from enhanced features, of moving clients onto a new platform.

As a result, many advice firms have been left dealing with having their clients' investments spread across multiple platforms. This has created an incredible amount of inefficiency for firms at a time when the cost of advice is skyrocketing.

Creating value from platform switching

Yet real value can come from changing platforms. No two platforms are the same and advisers need to understand that a platform's functionality and efficiency can have significant implications for clients' investment and other outcomes.

Any value created by switching must therefore be assessed by comparing the overall offerings of the existing platform and the alternatives. Considering fees alone won't enable a meaningful comparison. For instance, a better separately managed account (SMA) offering at one platform can be a very good reason to move, but some advisers won't necessarily do this because the destination platform has higher administration costs.

However, if you were to compare situations using risk-adjusted returns from investments on both platforms, the decision whether to switch can be easier to make and result in a different outcome for the client. If, for example, your analysis reveals that by moving platforms your business would accrue significant scale advantages, which could be reflected in lower advice fees to investors, the disadvantage of a potentially higher administration fee on the existing platform would be cancelled out.

In other words, comparing returns and costs of platforms requires advisers to capture the entire risk-return benefits of keeping clients on the existing platform versus moving them to the new one. This requires considerable data, but it can be done with the help of expert advice, analysis and technology tools.

Other factors worth considering before switching include the speed and efficiency of client onboarding onto a new platform, the alternative platform's functionality and its features - including any automation, any adviser support to enable you to understand and access the platform features and its overall investment offering, including SMA, managed discretionary accounts (MDA) and other alternatives.

Capturing efficiency accurately

There are huge differences between technologies used by different platforms. There are many considerations in comparing their efficiency, including the mechanics of the platform, its related service providers such as custodial networks and the efficiency of transactions.

This includes factors such as the time taken to implement adviser instructions, trade hygiene, corporate actions and the rebalancing of portfolios. Functionality, customisation, and the latest generation technology enabling accessibly of reporting and manipulation of account information are also critical considerations.

On top of that, an adviser needs to consider all platform costs, including administration fees, trustee fees, operational risk reserve, and investment management fees.

Advisers also need to be aware of any hidden costs.  Transaction costs, for example, are often not disclosed properly though they should be an integral part of a platform's fee disclosure.  The costs of running managed portfolios can include buy/sell costs and brokerage costs that haven't been considered as part of the platform administration fees.

Other costs that must be considered include share settlement fees, in-specie fees, custodial charges, foreign cash account fees, foreign currency conversion fees, corporate action fees and cash account fees. The treatment of tax deductions on expenses, and whether they are passed to a platform client, is also relevant.

However, as mentioned above, considering costs alone cannot lead to a meaningful comparison of platforms. While some platforms have bought market share by lowering administration fees, that does not necessarily translate into an optimal efficiency or better value outcome for end investors.

There can be more valuable offerings than an administration fee discount alone that a platform can offer, such as access to data, which can lead to substantial benefits for advisers and better decision-making for clients.

Advisers need to be in a position where they can recommend an asset that is in the client's best interest and their platform supports that decision.

A platform that best meets clients' their investment needs

While the financial advice industry is clearly in a state of flux given the increasing regulatory burden and the higher costs of financial advice, the demand for financial advice is still strong among Australians. The move to managed discretionary accounts shows no sign of abating, and these structures will be key to the success of advisers.

Combined with platforms' smart use of technology to develop advice strategies and greater competition, this will ensure advisers can provide tailored, cost-effective advice for the benefit of their clients, provided that their clients are on the platform that best meets their investment needs.

Until recently, none of the product comparison technology enabled advisers to conduct a detailed and comprehensive view of platforms and investment management features and benefits. But with the launch of Padua's 'Compare' product research comparison software in 2022, followed by two new transition management software applications that run alongside its flagship 'Transition Manager' system, Padua has helped to solve the switching puzzle for advisers.

When we consult with advice firms, we view transition management services as a complete program that incorporates both a comprehensive Book Analysis and a three step Transition Management program.

The three steps incorporate Ready (analysis), Set (segmentation) and Go (implementation). This results in a significant enhancement to the quality of an advice practice's  CRM data and provides a comprehensive analysis of how moving to a new platform will deliver cost, features, and scale benefits to both the advice firm and their clients.

By using this system, advice firms are able to change platforms and investment strategy more simply and easily, improve the quality of their advice, and refine the quality of their client data, thereby creating a more efficient, value-creating advice proposition.

The original article by Anne-Marie Esler, Financial Standard can be viewed here: