As we entered 2013, I spent a bit of time taking stock of the previous year and planning for the months ahead. As part of this process I engaged in some interesting conversations with my colleagues, in which we shared our thoughts around the shape of the year ahead for the wealth management industry in Australia. We all came to a consensus that 2013 will be a year of accelerating change. The forces of new regulation, advanced technology, increased business confidence and strengthened competition will combine to cause industry players to innovate more boldly.
Looking back to a year ago and our thoughts on the direction of 2012, Darren Stevens, our Director of Strategy predicted that, in preparation for FOFA, we would see a fight for access to High Net Worth (HNW) customers, with providers seeking to retain clients and dealer groups, and advisers pursuing an increased share of the value chain by becoming platform providers. True to these predictions, through 2012 we saw consolidation of dealer groups in the face of FoFA; the acquisition of Count Financial by CBA being an example.
As we move into 2013, the impact of FOFA will start to be felt as advisory firms continue consolidating and adjusting to a brave new revenue model. However, much like the GST and Carbon Tax before it, the effect will not be as severe as initially predicted, with consumers ultimately benefitting from these legislative changes.
Legislative change will be the hallmark of 2013, and the government’s Stronger Super initiatives, including MySuper and SuperStream, will drive superannuation funds and third-party administrators to focus on product and platform enhancements and spur industry consolidation.
I recently had a conversation with Michelle Lusty, our Head of Product Management – Wealth Management, where she forecast a widespread realisation that in order to not only comply with legislation, but seize the opportunities offered by the changing legislative environment, there needed to be heightened focus on investing in modern systems.
“Many of our customers are focused on near term compliance obligations; but I expect that a second wave of projects will be needed to streamline business practice and technology solutions to reap the real efficiency benefits that the legislation was intended to yield,” she said.
This use of technology to derive business benefits will be widespread, extending to the self-managed super fund (SMSF) sector. The growing appeal of SMSFs will continue the trend that is forcing traditional players to offer members more flexible investment options and create stronger member engagement through online and social initiatives.
We have already started to witness these predictions coming to fruition, with Australian Super leading the way and other funds now following suit. I think that we are likely to see this trend continue as funds attempt to stem the flow of cash to SMSFs, particularly after the last year which saw the largest ever number of SMSFs being created.
Darren Stevens correctly noted the continued significant growth in SMSFs last year. He also discussed how platforms and retail fund managers would increase functionality to provide SMSF-like additions to their platforms, as well as extending support for the likes of IMA/UMA and ETF functionality.
Our resident SMSF expert, Principal Consultant, David Barrett agrees: “As more and more Australians are choosing to take direct control of their retirement savings, the professionals who assist them are increasingly demanding software solutions that are tailored to their specific needs”.
On the technology front, we also predicted last year that there would be increased thinking around BPO, hosting solutions and IT outsourcing. 2012 was the year that cloud based options and BPO activity hit the main stream, and it was well represented in the conversations we had with clients about their plans. In the coming year I think that this trend will continue as more service providers deliver offerings and the market becomes increasingly comfortable with the idea, and the benefits that can be obtained.
In my opinion, the most important technologies in wealth management in Australia this year will be message-oriented middleware and open web-services. These powerful integration technologies will be widely deployed to meet SuperStream obligations and, as businesses come to see their benefits, they will be quickly applied more broadly than regulation alone demands.
Time will tell how the year pans out; however, I think we can be sure that regulation will be a major factor in market trends in general, and that technology will certainly play an important role in leveraging these changes and maximising benefit.