Price War Looming For Wealth Platforms?

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            [5] => ((CGF))
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This story features WESTPAC BANKING CORPORATION, and other companies.
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Is a price war looming for wealth management? Several brokers contemplate the outlook, as Westpac's BT Financial slashes fees on its Panorama platform.

-May ultimately translate into lower profitability
-Aims to limit leakage to Netwealth and HUB24
-Uncertainty likely to limit sector performance in near term
 

By Eva Brocklehurst

Wealth manager platform fees appear under pressure. Westpac's ((WBC)) BT Panorama has reduced its platform pricing structure and others are expected to follow suit.

There is uncertainty regarding regulatory and political intervention in the wealth industry which is undermining confidence as banks are de-merging their wealth assets and industry funds are merging.

Vertical integration is likely to continue and planners progressively rebate commissions, while cross-subsidising is reduced, and Morgan Stanley suspects the current situation presents an opportunity to find value. Value will continue to move upstream and the importance of scale increase.

UBS is not surprised that with specialty providers increasing their share of retail wealth flows, major institutions have responded with tighter pricing. The broker envisages rising risks to platform fees, particularly if grandfathered commissions are abolished.

BT Panorama's price reductions are most effective at larger account balances, with those administration fees for balances over $1m falling by -40% or more. Fees will now be capped at $2040 per annum for these balances, versus a previously uncapped fee schedule.

UBS points out, BT Panorama is not necessarily breaking new ground on prices but is the first to deliver full functionality at this price point. A 20 basis points fee at $1m is becoming the new norm, the broker suspects, as AMP's ((AMP)) North platform is already at 21, Macquarie's Wrap at 22 and MLC Wrap at 24 basis points.

Morgan Stanley believes the new platform fee structure at BT aims to limit leakage to Netwealth ((NWL)) and HUB24 ((HUB)) and break down the dealer group economics of the large advice networks that are white-labelling BT Financial.

Given the material investment that has been made in the Panorama platform, this appears to Macquarie to be a push for market share and presents some near-term risk for the margin forecasts for IOOF ((IFL)) and AMP.

Macquarie factors in -2-3 basis points of margin declines over the medium term. The broker notes Westpac remains committed to the wealth management space and, while its offering is superior to incumbent peers this is yet to translate into superior results.

Market Share At What Cost?

Westpac needs to deliver stronger revenue growth and better performance on costs to justify its investment, Macquarie asserts. The reduction in platform fees will arguably improve its ability to retain and grow funds under management but it has come at the cost of around -$50m in earnings per annum. The broker suggests, should the industry follow suit, it may ultimately translate into lower profitability.

Recently the major banks have generally underperformed contemporary platforms, as operators such as Netwealth and HUB24 delivered strong flows and grew market share rapidly. If current trends persist, Macquarie suspects the position of the majors may become marginalised.

Westpac's historical outperformance relative to peers has decreased and this may be a function of integration issues, in the broker's view, with a loss of momentum as resources were diverted to building a new platform.

Uncertainty Prevails

Macquarie observes both AMP and IOOF are trading at a significant discount to their 5-year average relative to the market, given the risks associated with the Royal Commission and proposals for fee caps on low balance accounts. The broker prefers IOOF over AMP because of the “open architecture” model but realises uncertainty will limit the performance of the sector in the near term.

Morgan Stanley considers IOOF has some options to deal with the threat of a price war, although its Lonsdale dealer group is most exposed. Meanwhile, AMP's self-employed planners are considered its best defence.

The broker also believes the market remains too bullish on Challenger Group's ((CGF)) MyRetirement opportunity and sales momentum in the near term may be disappointing. There is slower-than-expected take-up on the AMP platform and potential delays in the rolling out of the BT platform solution. Challenger's sales in Japan are also weakening and pension test changes overhang lifetime annuity sales.

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