“They’re certainly not interchangeable, especially from an adviser’s point of view, if say they’re looking to reduce the CGT when switching clients’ investments from one portfolio to another,” says Mr Alcock.

More advisers want to sit down with clients and know how much tax will be incurred before changing investments such as shares and managed portfolios or SMAs

HUB24’s tax optimisation tools help advisers understand, at different points in time, the CGT impact of switching between all available portfolios to better manage their clients’ tax position. Advisers can also choose which method to use for calculating CGT to further optimise their clients’ CGT positions, and good technology allows use of the most appropriate share parcels to achieve that goal.

“The HUB24 platform also goes the extra mile for managed portfolios by netting off the trades within an investor’s accounts so they can save on CGT and brokerage costs as well,” says Mr Alcock.

“In fact, across directly held assets such as SMAs and shares, the HUB24 platform can pinpoint which assets to sell first, to minimise CGT, regardless of whether these assets are being managed by the adviser or are a professionally managed option.”

“It’s not just about having the ability to choose which type of assets to invest in, it’s being able to have control over the tax bill, a significant influence on investment returns. Time and time again we’ve seen investors saving thousands of CGT dollars.

“Platforms that achieve this cannot be considered equal if they deliver value far beyond just the administration of assets”, says Mr Alcock.

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Claire Wivell Plater

Recent guidance from the Australian Securities and Investments Commission (ASIC) confirms in no uncertain terms that the Best Interests Duty applies just as much, if not more, to platform recommendations as it does to investments.

“We discovered the guidance around platform recommendations while reviewing RG148 on platforms,” says Claire Wivell Plater, Managing Director of The Fold Legal (The Fold). “It outlines significant precautions advisers must take when selecting and recommending a platform.”

Ms Wivell Plater says that the most important thing to consider is whether being on the platform is in the client’s best interests.

“An adviser’s Statement of Advice (SoA) needs to canvass the variety of implications the platform may have on the client,” she says. “It should also contain enough information to enable the client to assess whether to use or switch to a platform.”

Ms Wivell Plater says when advisers recommend a platform, their SoAs will now need to explain the following:

• Why investment through the recommended platform will benefit the client, rather than investing directly or through another platform
• Why the features and services of the recommended platform are suitable for the client
• The investments available, how they are selected by the platform operator and why they are suitable for the client
• The fees and costs associated with the platform and how they relate to the costs of the underlying investments and advisers fees
• Any significant tax implications arising from use of the platform
• What will happen if the client wants (or has) to leave the platform if they opt-out of receiving ongoing advice

“What is interesting is that RG148, which you would expect to be all about the platforms themselves, actually contains guidance for advisers who use platforms,” Ms Wivell Plater says. “It underscores the need for licensees and financial planners to be right across all the regulatory guides at all times.”

Click here to read more about the implications of RG148 for advisers and licensees at the Fold’s blog – Frankology.

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The strengthened disclosure requirements are part of a suite of new requirements following a review of the sector, which now has around $90 billion funds under management (refer 12-49MR).

Platforms can assist retail investors to manage their investment portfolios, including through their advisers.

‘Our updated guidance moves with the times and recognises that, with consumers taking a more hands-on approach to investing, their rights must be at the forefront of platform operators’ minds,’ ASIC Commissioner Greg Tanzer said.

‘Consumers may assume that products on a platform are ultimately going to work for their benefit. ASIC wants to ensure they make confident, informed choices and are aware of platform operators’ practices.’

Further requirements include ensuring they have adequate resources to conduct their financial services businesses, having appropriate corporate structures and compliance arrangements, having additional policies like voting policies and policies when consumers do not opt in to continuing to receive advice, and improved disclosure through a consumer warning acknowledgment.

Investors will also have access to a product issuer’s internal dispute resolution system when they have concerns about investments made through platforms and product issuers agree to do so. ASIC will give further consideration to extending this requirement to cover external dispute resolution and corresponding compensation arrangements.

The revised guidance is contained in Regulatory Guide 148 Platforms that are managed investment schemes (RG 148) and accompanied by new class orders.

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Chaired by PIR with panel members including Richard Stacker of Charter Hall Direct Property, Stuart Brown of Westpac and Brad Matthews of AMP Research, the panel discussed the outlook for the unlisted property syndicate market, with an audience of investment advisers, HNW investors and fund managers.

One of the biggest issues the panel discussed was the gatekeeper role retail investment platforms play, in determining whether advisers are able to easily access investments in unlisted property syndicates and funds for clients.

“Advisers are looking at how they can best scale their business and gain the most efficiency and for a greater number this is achieved by investing on platforms. At the moment we’d say direct property is on the fringe of the mainstream investments for planners and a key reason for this is because of the lack of assets offered on platforms,” said AMP Research’s Brad Matthews.

Getting unlisted investments on platforms requires a collaborative approach 
Charter Hall’s Richard Stacker said there was opportunity for unlisted products to get on to platforms but it needed to be a collaborative process.

“Product providers need to work alongside dealer groups and platform providers to ensure the structures of new products meet the needs of investors but also the platforms, to help bring direct property investments into the mainstream financial planning space.

“We’ve already had strong traction with platforms for our Direct Industrial Fund (DIF1) and now DIF2, and we are seeing increasing flows from that area as planners use this efficient model for their clients to look for alternatives to term deposits where they have also invested via a platform,” Stacker said.

Commenting on the quality of investments available in the current market, Matthews said he didn’t believe liquidity was the area holding unlisted investments from inclusion on platforms.
 
“Property investments coming out at the moment are of a higher quality and more client-oriented than previously; however, this hasn’t translated into strong representation on platforms. In the past liquidity was a critical characteristic for getting on a platform, however it shouldn’t be the case that something has to be liquid to get onto one, providing investors are aware of the liquidity restrictions,” he said.

Stacker said there were opportunities for product providers to be included on platforms, provided they were willing to design product around platform requirements.

“Charter Hall has spent a lot of time with platforms and we are seeing increasing flow from that area as planners gravitate to platforms for efficiency and alternatives to term deposits,” Stacker said.

Low interest rates bring strong interest in unlisted property 
According to Westpac’s Stuart Brown the ongoing deposit war of the last few years amongst the big four banks had made term deposits very attractive for investors. However Brown believes as the banks become more comfortable with their capital structures, the reliance on term deposits will reduce.

“I’d say all the big banks have reached a level with their capital structures they’re now comfortable with. Our economist is forecasting one more rate cut this year so term deposits will probably come down a bit more with that,” Brown said.

With the current low interest rate environment driving investors and their advisers to alternative sources of growth and income, the panel consensus was unlisted property syndicates and funds would continue to experience strong interest.

Since 2012, the unlisted property syndicate sector has seen strong activity as a result of improved property fundamentals, lower debt costs, and increased appetite from retail investors for higher income yields.

PIR estimates since January 2012, unlisted property syndicates and retail funds have raised between $450-$500 million in equity, with newly launched syndicates often promising distribution yields of 8% and above. Figure 1, below, shows an overview of the unlisted retail sector as at 31 December 2011. PIR is due to release the updated 2012 figures later this year.

According to Stacker, demand for unlisted property syndicates and funds is increasingly being driven by SMSF investors, with Charter Hall seeing strong interest from trustees and their advisers. He attributed this to SMSFs’ natural affinity for property investments, long term investment horizon and favourable tax characteristics.

“The opportunity lies most for people initially in the accumulation phase, as they can get the tax deferred benefit of investing in property. Once they move into the pension phase, having capital gain returned, tax free, is a huge advantage and one that probably needs to be sold a bit better,” he said.

In conclusion, Matthews said:”Direct property is a fundamentally good investment for clients. It provides what investors are looking for, stability with inflation linked returns, and syndicates have the potential to do that so if we can get the structure and expectations right, there’s a real opportunity.”

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Based on comprehensive face to face reviews of 25 leading master trust and wrap platforms, the ninth edition of the Investment Trends December 2012 Platform Report is an in-depth study of the investment platforms used by Australia’s financial planners. The report covers 463 key characteristics of each platform and its associated service offering, providing a unique insight into the competitive standing of each provider and emerging trends across the industry.

The report found that platform providers have been holding back on many aspects of developments until upcoming reforms and legislation is finalised and uncertainties around business implications are lifted.

“Legislative uncertainties and burdens have caused platform functionality at an industry level to grow at its slowest rate for the past five years,” said Investment Trends Senior Analyst Recep Peker. “However, even during this challenging environment Australian master trust and wrap platforms continue to evolve through in offering the right products and solutions to financial planners.”

“With the future of financial advice reforms (FoFA) requirements becoming clearer platforms’ focus is turning to improving planners’ business efficiency and helping them add demonstrable value to their clients,” said Peker.

“Platforms are well positioned for a busy 2013, with many reporting significant development schedules for the year ahead.”

Enhanced reporting and transacting
“During their reviews, numerous platform representatives told us that their 2012 developments have been focused on making planners’ lives easier,” said Peker.

“We found this to typically manifest in a number of ways, including improvements to client review reporting and transactions.”

When surveyed in 2012, financial planners said improved reporting was one of their most sought after enhancements from their most-used platform, even ahead of reduced platform fees. This is partly related to planners’ intentions to increase client contact and reviews and further their value add to clients.

Many platforms have recognised this, and as part of supporting planners they have developed tools to serve this purpose:

• Greater range of reports, and greater depth of detail within these reports
• Increased transparency and flexibility around fee reporting
• More efficient ways of producing reports, including bulk reporting and creating report packs
• Pre-scheduling of reports to run on a periodic basis.

Other tools developed by platforms are to facilitate more flexible and efficient client transactions, with portfolio management related enhancements including:

• Bulk client transactions and order management
• Greater flexibility in model portfolio functionality and better reporting
• Ability to add adviser service fees at a model portfolio level.

A notable development in this space is CFS FirstChoice’s new Record of Advice (RoA) tool for model portfolios, which allows planners to generate planner/dealer defined and customisable RoAs automatically for clients affected by bulk transactions.

“In the face of the looming FoFA legislation, tools like these help reduce the time it takes planners to review and service clients while helping manage down the cost of opt-ins,” said Peker.

“Ultimately these benefits will flow through planners and benefit end investors.”

Platforms are beginning to embrace to new mediums
Another area where platform development has been prolific has been in the availability and quality of technical resources and training available to planners over. Notable improvements include:

• A proliferation of educational webinars, videos, YouTube channels
• Intuitive and engaging simulation tools, available to both planners and their clients
• Smartphone and tablet apps delivering technical information to planners and education to clients.

CFS FirstWrap overtakes MLC Wrap and Navigator to become the new leader among platforms
Among full-function platforms (those supporting planners advising on a wide range of investments, including direct equities) CFS FirstWrap achieved the number one position in terms of overall functionality. The five top-ranking full-function platforms were:

1. FirstWrap
2. MLC Wrap & Navigator
3. netwealth
4. Asgard eWrap
5. Macquarie Wrap

Colonial First State FirstWrap jumped to the lead in 2012 and regained the crown for first place in the full functionality platform. FirstWrap also ranked first for product offering, transaction capabilities and accessibility.

Enhancements introduced by FirstWrap include:

• e-Post facility, a secure, online portal for advisers to submit scanned forms for processing through the platform
• Further improvements to its excellent model portfolio functionality, including reporting improvements, bulk trading functionality, blended models and portfolio fees at a model level
• Transitions centre, making asset transfers easier for clients and advisers
• Enhanced listed securities research, leveraging CommSec Adviser Services research features assisting advisers in client transitions.

HUB24 was the platform to increase its scores the most over 2012, deploying retail superannuation, retail insurance and group insurance in addition to SMSF enhancements and many other new improvements.

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Statements for more than 200,000 investors were delivered by 11 October – 10 days earlier than last year.

BT Financial Group Head of Platforms, Kelly Power, said the achievement was the result of continued innovation and investment in the BT Wrap platform.

“Our commitment is to make the challenging end-of-financial-year process as quick and painless as possible for advisers and investors. We’re proud to be delivering on that commitment.”

BT Wrap was also the first major platform to deliver the first tranche of statements to clients.

BT Wrap’s new estimator tool, which was launched this year and which estimates when annual tax statements are expected to be delivered, was also successful with 91% of statements delivered before or on the estimated date. The remaining 9% were completed as soon as all prices and tax component information was received from external parties.

The tool uses a client’s investment portfolio composition to estimate when annual tax statements will be delivered. The estimates were made in July using fund manager and share registry estimated component delivery dates.

Other highlights included the 19,000 clients who chose to receive eStatements this year – the first year this service was offered. These clients had access to their statement at least 7 days earlier than others, and BT Wrap expects a further 10,000 clients to sign up for this service over the next year.

In addition there was a 30 per cent increase in the number of advisers accessing BT Wrap’s end-of-financial year tinformation website.

“As always we work closely with advisers and over the coming weeks we’ll be getting feedback to help further improve the process for advisers and their clients in 2013,” Ms Power said.

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BT Financial Group Head of Platforms Kelly Power said Infinity was a very attractive solution for a range of clients as it was fully featured but only charged clients for what they used.  

“Surpassing the $2 billion milestone in less than a year since launching in October 2011 is a testament to the strength of the Infinity offering,” Ms Power said. 

“Infinity is unique in the market as it allows clients to pay only for what they use, making it particularly appealing to those with low balances or specific investment needs. 

“The beauty of Infinity is as a client’s needs change and balances grow, you can add features or switch between Infinity and the full Asgard eWRAP without any CGT event or time out of the market.

“The highly competitive price and the fact there are no administration fees for cash and term deposits have also proved extremely popular.” 

Ms Power said Infinity had been designed with the Future of Financial Advice reforms in mind. 

“The fully customisable, flexible and transparent advice fee structure supports all advice propositions and fee arrangements, including fee-for-service,” Ms Power said. 

“Advisers are in control of customising the offering so it can help them service new and diverse segments such as self-managed super funds in the new regulatory environment.”

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The platforms sector attracts significant funds. In the last decade the level of non-superannuation-related investment in platforms has doubled to around $100 billion of funds under management.

‘The platforms sector has changed and grown considerably and continues to develop and expand,’ ASIC Commissioner Peter Kell said. ‘This is a trend we expect to continue with new forms of vertically integrated business models emerging. We also anticipate that more investors will seek to make direct investments without financial advice.’

In response to this shift in investor behaviour, ASIC proposes additional requirements for platform operators to enhance investor rights associated with investments made through platforms.

‘ASIC is proposing that clients should be entitled to the same rights concerning their investments through those vehicles that they would have had if they had invested directly,’ Mr Kell said.

Mr Kell said ASIC wanted investors to be confident and informed when making decisions to use platforms and invest through them.

‘Our proposals aim to strengthen operating requirements for platform operators, ensuring they have adequate resources to conduct their financial services businesses, supported by appropriate corporate structures and compliance arrangements,’ he said.

ASIC also proposes to require platform operators to disclose how they select financial products for inclusion on investment menus, information that can have an influence on the investment decision of a client.

Comments on Consultation Paper 176 Review of ASIC policy on platforms: Update to RG 148 CP 176 are due by 20 April 2012.

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