The report by analysts Kieren Chidgey, James Coghill, Wilson Nghe and Olivia Clemson says major platforms are increasingly shedding funds under administration (FUA), with advisers opting for their contemporary counterparts.
“The recent successive reductions in administrative costs by major suppliers are, in our view, only a band-aid solution: they could mitigate capital outflows; however, these measures could ultimately exacerbate legacy/contemporary changes and revenue pressure,” UBS analysts noted.
The investment bank also believes that with net outflows from super retailers and major platforms losing market share to specialist platform providers, the combined impacts of fees and FUA could lead to a revenue drop of 25 percent over five years.
Even if major wealth managers undertake a radical cost reduction of 20 percent over the next five years, investment managers still expect platform profits to decline.
As a result, UBS expects lower profits for AMP and IOOF.
The analysis expects large platforms to increase cost control efforts by consolidating and upgrading their systems.
“Our review of royal commission cost data suggests that the benefits of consolidating existing platforms may be limited, with profits likely to lag revenue compression,” UBS said.
He also noted that recent fee cuts suggest current prices could fall by 30 basis points over the next five years. Overall administrative costs, UBS added, could fall by 40 percent from current levels.
“If current fees fell to 25 basis points and costs remained at 20 percent, the decline in profits could reach more than 60 percent,” UBS said.
