Much debate in Australia at the moment around platform pricing, and with the royal commission going on, the whole subject of what platforms are in relation to the client’s best interest is kicking up.
My observation is that a lot of this discussion is naturally coming from an industry centric perspective, and incremental improvements from current industry infrastructure towards better outcomes from investors, and this is progress. We are seeing lowering of costs, and improvement of user experiences for investors.
However, if we take a different approach and start from an investors’ perspective, the resulting path may be quite different. Let’s look at this.
From an investor’s perspective, what do a really want from people managing my assets, and what is in my interests? From most of the people I talk to they seem to want:
Safety – a need to know their investments are safe and an increased interest in what type of structure “holds” their assets
Low Cost – This seems obvious, but they want both lower costs with increased transparency of fee structures
Visibility – simply an easy way to see what they own and its value
and:
Flexibility of Administration
- some people want little to no involvement in the administration of the investments
- some people want to have some involvement in the administration of their investments over paying someone to do this for them
and
A Mix of DIY and Hand Holding
- some people want the ability to have others make and implement investment decisions for them
- some people want to ensure they can make their own investment decisions
- some people want a combination of the above
The overriding factor that also dictates where the investments are held is also whether the monies are actually owned by the investor or owned in trust for them in the superannuation system (which got raised in recent royal commission as an area for scrutiny due to the fact that the investments are held in trust for the investor, but they can’t move them!)
So, for Australia (and extends largely to other countries), if we now overlay the 2 general ways of holding investments, being that of a custodial platform vs holding them in a ASX CHESS HIN, we sort of end up with the comparison of:
Owning investments on Custody Platform
- Pros – little to no involvement by investor, investments are ‘safe’ (in a regulated platform, although this is sometimes not obvious to a retail investor), usually easy to see investments, often set up to have others (advisers) implement investment decisions
- Cons – there are some costs, which vary
Owning investments on HIN
- Pros – little to no costs, usually easy to see investments, investments are legally held by the investor and this is easily understood. Technology is increasingly providing capability for advisers to implement investment decisions
- Cons – depending on the investments chosen there may be some administration requirement here
Wrap Up
So, in simplistic terms it appears it is coming down to whether the costs of the custody platform are worth the offset of the time and effort (or costs) to do any HIN based administration, and whether the investor has the understanding or appetite to take on such.
One could argue that for complex diversified portfolios holding shares with corporate actions this may be outside the skill levels or appetite for a mass retail investor, and hence custody platforms with diversified products meet the accepted ‘best interest’ for an investor. However today with broad usage of packaged ETFs that can achieve a diversified portfolio with a handful of investments (the use of which is growing massively), has the pendulum swung the other way towards HIN based ownership? Whilst there is no ‘one size fits all’ as it depends on investor skills, preferences and appetites, and sums invested, in many cases it would appear that moving forward that HIN based ownership may be ‘best interests’ for many.
Comments welcome to add to the discussion…
