The news of Netwealth Investment shares (NWL) surging 40% upon floating this week, they now trade on a multiple of 46 times forward earnings, highlighted the growth opportunity in a burgeoning market; that being investment and superannuation platforms. NWL holds just 1.7% of the $750bn platform market, yet investors are willing to back the company for future growth; in order to understand why you need to understand what’s happening in the industry. What’s a platform? Most simply, a wrap account is a means of consolidating and managing your investment or superannuation portfolio. It is a service that takes care of all the reporting, taxation, legislative and administration responsibilities associated with owning a diverse range of assets. So rather than having to complete application forms for new investments, file your dividend statements throughout the year and prepare your quarterly tax lodgments, a platform does this for you for a fee. A chequered past…. As with most financial products or service, the platform industry has attracted negative sentiment due to policies of the major banks. Each of the major financial institutions has operated their own platform, be it MLC (NAB), AMP (North), Colonial First State (CBA), One Path (ANZ), BT (Westpac) for the last decade. However, rather than using the technology to offer the best possible service to their clients, they have used it to do the exact opposite. The large institutions saw the platform as another way to extract fees from customers whilst restricting the investments on each platform to those issued by their own funds management companies; a well publicised conflict of interest. Fortunately, however, the sector is starting to change. Firstly, the industry is already seeing an increasing number of advisers leaving vertically integrated institutions and moving to independently owned advisory groups. These advisers are leaving because they want to be able to recommend what’s in the best interest of their clients, not what their employer allows them to recommend. As a result, the likes of BT, MLC and One Path are losing market share to the non-aligned, independent platforms like Net Wealth and Hub 24, that offer a much more diverse selection of investments and ancillary services. Secondly, the sheer size and scale of the major platforms has been the major roadblock to improving their service and technology. You see, these platforms are used by a diverse range of financial advisers across Australia, around 18,000 who work in 750 different businesses. Therefore, even the slightest change to a platform must first be canvassed with every member of their network who will have their own objections and who use the platform in a different way. This is the reason it can take the major banks anywhere from five years to a decade to make even the smallest changes to their platforms. Finally, fund managers and investors are tiring of the banks being the ‘gate keepers’ to their success. Many investors are probably unaware, but it can take several years for a fund manager to be admitted to one of the major platforms, as they view it as a business decision, rather than a way to improve the service to their customers. In many cases, the costs can run into the $100,000 just to get approved for a major platform. The Future Thankfully for investors and advisers alike, the sector is beginning to be disrupted. We all know the strength behind Amazon and eBay has been to provide customers with the best possible service at all costs; well now…

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