Local equities clearing firm FinClear will enter the wealth management platform market offering significantly lower fees in a grab for market share that may supercharge the move by financial advisers away from platforms owned by the big banks.
FinClear will be launching its own platform with a fee of 1 per cent or less of assets under management, compared with competitors that charge up to 2 per cent. Platforms are used by financial advisers to aggregate and manage their clients’ wealth.
The company bought the underlying technology product from fintech firm Dion Global’s Australia operations last year and there are already up to 400 financial planners and 30 stockbrokers using the platform, including Lonsdale, RSM and InvestSMART.
FinClear’s David Ferrall and David Hancock are set to disrupt the platform sector by launching a low fee product.
Managing director David Ferrall said platform fees are too high and are set to come under pressure as investors start to question their value in light of the Hayne royal commission putting the whole financial advice sector under the spotlight.
“While the focus is on the advisers at the moment, we do believe that over time the focus will shift to incidental fees or platform fees because they are very expensive and they do have the potential for significant disruption,” Mr Ferrall said.
‘Way too excessive’
He said the fees charged by platforms were too high compared with the value they provide.
“All they are doing is providing a technology solution to look at [a client’s] consolidated assets. And charging over 1 per cent or 1 per cent in many cases for a reporting capability or an ability to consolidate and see your client’s assets is way too excessive,” he said.
He said FinClear’s platform fees for managed accounts will be “at a minimum 50 per cent cheaper”.
FinClear’s launch of a platform comes as financial advisers are already moving away from bank-aligned platforms to independent ones such as Netwealth and HUB24 post the Hayne royal commission.
Price war to heat up
FinClear’s entry into the platform market will add fuel to the price war in the sector. Westpac last year cut fees for its Panorama platform. Although the bank in March revealed plans to get out of the provision of financial advice, it remains committed to its platform business.
Mr Ferrall said FinClear’s HIN Platform will compete with bank-aligned platforms and independent platforms.
FinClear chairman David Hancock, who is also an executive director of listed buy-now, pay-later provider Afterpay Touch, said FinClear was looking at a number of options including an ASX listing.
“We’re very well funded today. We’re looking at a number of different options one of which is potentially listing but it is not the reason why we’re moving forward on this [platform launch],” Mr Hancock said
“Listing might be something we do in the future but today as we stand we’re well funded, and we’ll look at different opportunities for growth and that [an ASX listing] might be one of them.” he said.
Direct ownership model
FinClear’s platform will allow financial advisers to hold their clients’ investments on their own unique holder identification number or HIN, meaning the investor has full, direct ownership of assets.
This is in contrast to competitors that operate under a custodial model, meaning the assets are typically owned by investment banks on behalf of investors.
This could become a problem in times of volatility, such as when large investment banks collapsed during the global financial crisis.
“Those custodial platforms are holding your assets rather than you holding those assets directly. So you have a credit exposure to large investment banks,” Mr Ferrall said.
Mr Ferrall said moving away from the custodial model also means investors can save on multiple layers of fees and financial advisers can move from one custodial platform to another more easily.