Sunday, September 06, 2009

Day Two at the 9th Annual Wraps, Platforms & Masterfunds Conference

Bruce Madden, co-founder and Director of BlueChip Communication, attended Day Two of the Wraps, Platforms and Masterfunds Conference in the Hunter Valley. Here is his take on the day.

To summarise the mood of the retail IDPS industry, gathered together to discuss vital business matters in the Hunter Valley these past two days, one reaches for synonyms to describe the twin notions of fear and rejuvenation.

The fear bit is easy, but type 'rejuvenation' and hit Shift F7 on your Microsoft Word software and a number of useful ideas pop up, including:

Transformation; upgrading; innovation; reconstruction; renewal; renovation; rebuilding and revolution.

These aptly describe the challenge and opportunity ahead of the master funds and wrap industry in these post GFC days of an uncertain future, and a number of 'wildcard unknowns' posed by the Cooper and Henry Reviews and the Ripoll Parliamentary Joint Committee inquiry.

As a Financial Services communication consultancy, our firm spends much time thinking hard about how the entire FS industry - from retail advice to unit trusts and platforms to industry super and SMSFs - will fare and communicate to their stakeholders moving forward. The great challenge our industry faces today is that - even with increased government regulatory intervention, no single sector or interest can prosper in isolation.

For example, much has been made about the 'us-versus-them' dynamic that has characterized the retail and industry fund sectors. I sense a softening of this perception - that this view is seen as a crude and unhelpful depiction of a more complex dynamic. In fact, as was discussed at this morning's session, there is greater interdependence and co-operation required from all sectors, particularly the retail platforms and industry funds.

An example eloquently cited by Tria Investment Partners partner Andrew Baker is the provision of advice: how does an average Industry Fund, with $15bn FUM, and 750,000 members find a solution to its looming advice service problem? As Andrew posed: the industry funds have a buy or build mentality: if they don't buy in services, they will build it themselves. Either way, there is great opportunity both for the retail industry to remove its real or perceived conflicts and for each of the sectors to commence productive discussions about delivering to the needs of Australians.

That's the rejuvenation part - for the retail industry to throw out the old, embracing a new, transformational system of innovation built around what is appropriate, ethical and transparent for the end consumer.

So much for the challenge: what about the fear in this equation?

To be blunt: the retail industry's greatest fears are that the Cooper Review makes sweeping, revolutionary recommendations that shoot an arrow head deep into the heart of its current model.

That the Cooper barb pierces the current bloat of platform rebates, commissions, preferred partner schemes, volume bonuses etc; that he also mandates for a simple, embedded advice/product model at one per cent MER; that he renders unviable any underperforming investment managers who take a fee for delivering benchmark or sub-benchmark performance; that greater transparency prevails which may threaten existing business models.

There is also the legitimate fear that market forces will not be allowed to prevail - replaced by further government intervention, or a system of interventionist product creation delivered by well-meaning but naïve public servants in Treasury.

The ultimate challenge - as the retail industry spends the coming weeks and months reflecting on these issues and drawing up its submissions - is to find some greater harmony beyond the political rhetoric and commercial interest.

To build a viable and saleable business model that sustains healthy outcomes for all industry stakeholders, which transcends the unhelpful dogma approach. Sound simple?

The inventor of such a system would surely be up for a Nobel Peace Prize.

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