How Australian platforms are using technology to gain a competitive edge

Technology is a point of differentiation as advisers seek more tailored client outcomes

Platforms have advanced considerably since the 1980s when Australia’s ‘big four banks’ dominated the sector. Today, technological advancements supporting managed accounts, as well as data mining, and artificial intelligence (AI) are allowing specialist providers to gain market share while providing advisers with the ability to better customize client portfolios.

Within Australia, smaller and more nimble platforms are gaining market share. Underpinning this shift are three key market dynamics including: changing consumer expectations, a decrease in the number of financial advisers aligned with, or owned by, the big four banks or larger financial institutions, and ongoing technological innovation.1 At the same time, investor demand is shifting with challenging investment conditions and volatile markets.

Key insights

  • Today’s platforms need to show how they provide better outcomes for advisers’ clients in order to win their business
  • Technological developments such as mass customization within managed accounts is helping platforms differentiate themselves
  • Greater and ongoing collaboration is required to best leverage the full potential of technologies such as data mining and AI

Market  context

In January 2018, funds under management held on platforms in Australia topped AUD 821 billion, a compound annual growth rate of 10 percent since January 2011.2 Yet, the number of platforms used by financial advisers is falling. In 2009, advisers used on average 3.5 platforms for new-client inflows, which dropped to 2.1 in 2019.3

Managed accounts a key differentiator

Platforms remain an essential part of the financial services industry and technological advancements around managed accounts are helping to drive that growth. According to the Institute of Managed Account Professionals, as at December 31, 2018, funds under management in managed accounts stood at AUD 62.12 billion.4

David Brown, Managing Director, Global Client Coverage Australia, RBC Investor & Treasury Services, moderated a recent Financial Services Council Technology Workshop.5 He said key to any discussion about platforms and technology is data. “From our perspective, our strategy is to be a data-enabled bank. We’re focused on delivering data and data insights to our clients through a variety of channels, enabling stronger connectivity with their investors. While the custody of funds remains core, the ability to deliver data that brings you closer to your clients is where we want to be.”

Lisa McCallum, Executive General Manager, Platform Services for OneVue said, “The latest technology developments are helping to bring about greater transparency, ownership, engagement, and efficiencies for advisers using managed accounts.”

The ability to deliver
data that brings you
closer to your clients
is where we want to be

Andrew Alcock, Managing Director for HUB24, added “Mass customization will allow advisers to tailor their clients’ portfolios to exclude things like specific market sectors or stocks depending on their clients’ preferences.” That mass customization will still allow advisers to benefit from a portfolio manager’s intellectual property, but they will be able to tilt it towards their clients’ needs in a dynamic way. “Such a development will provide for superior client outcomes in a model portfolio implementation as the managed account will allow clients to deviate from the model to buy an alternative stock or asset,” he added.

This feature will do away with the one-size-fits-all approach. Mass customization may also support advisers in their requirement to act in a client’s best interest. “What we can do today is light years of where we were,” said Alcock.

Data mining and AI deliver efficiencies for advisers

Greater platform efficiencies are also being driven by data mining and AI, which are assisting in the decision-making processes of advisers as they look to improve client outcomes.

Greater platform
efficiencies are also
being driven by data
mining and AI

Platforms hold vast amounts of data that advisers can use to deliver more targeted services to clients, and surfacing more insights and analytics could further boost their value proposition. That, combined with machine learning and AI to predict client behaviours, would further deepen adviser/client relationships.

Platforms are also working with specialized AI providers to integrate data to develop regtech solutions for advisers. These include solutions that focus on the compliance requirements specific to advisers such as whether websites and social media posts and uploads are onside.

Enabling connectivity will set the stage for platform evolution

While technology has enabled platforms to become more efficient, there are still barriers, particularly around the number of incompatible tools, interfaces, and applications used by advisers. This suggests that platforms should focus on connectivity as the key to sustained growth.

Operating within a closed architecture inhibits the ability to incorporate and leverage valuable data that may reside elsewhere. Platform providers are exploring how to bring about greater connectivity across the industry and how to connect disparate systems, multiple data sources, and applications to help advisers provide a single, more insightful view of their clients’ portfolios.

Collaboration required to keep industry moving

Greater connectivity is a key aim for the industry and market participants must also keep up with the pace of change. Digitization, for example, is evolving rapidly, fueling an ongoing need for standards and collaboration within the Australian market as many platform gatekeepers are seeking firms with whom they can partner with for broad, long-term relationships.

We need to work out not only how we get there, but how we get there together

Alcock believes there are opportunities to improve the financial services sector. “We perhaps weren’t as progressive. This has affected the industry’s reputation.”

Platform providers are seeking ways to work with all participants so there is greater awareness and understanding of where the industry is heading. While technology is a key differentiator for platforms, a collaborative approach benefits all parties. “We need to work out not only how we get there, but how we get there together,” McCallum said. “As an industry, players don’t have to do it independently. If we work together we have a better case and a better chance of a successful change, which will benefit the entire sector, including clients, which is the ultimate goal.”

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Sources

  1. Netwealth article (May 22, 2018) Platforms – the original fintech
  2. Ibid.
  3. Investment Trends Press Release (June 28. 3019) 2019 Planner Technology Report
  4. IMAP Milliman Managed Account FUM Census as at 31 Dec 2018 (March 14, 2019) Press release
  5. Financial Services Council Technology Workshop Series IV (August 1, 2019) How are platforms using technology as a competitive edge to win investors