Technological innovation made these programs accessible to a much wider investor market, as the minimum investment requirements were gradually brought down.
Although some of Australia's largest platforms have been around for 25 years, they were still very much the domain of large sophisticated investors when IFA's first issue came out on 18 October 1999.
One of the articles in this inaugural issue narrates how the founder of the master trust industry in Australia, Kevin Wyld, was preparing the launch of a new firm, Beacon Investment Management Services.
It was Wyld who recommended in 1985 that Bain & Co should establish a master trust, and the company did so in 1987.
Beacon Investment Management is now a large division of Tower Australia and still offers wrap services.
In 1999, it was a moment in time when the platform industry was gaining steam.
Although most fund managers still sold their own products to investors with the help of financial advisers or insurance agents, master trust were growing rapidly.
The market was dominated by the Asgard master trust, which had $6 billion in funds under administration (FUA) at the time.
The figures involved these days show how fast the industry has grown. Asgard has grown from $6 billion to $37 billion in FUA. And after the merger between Westpac and St George, which brought Asgard and BT Wrap under one roof, BT Financial Group is by far the largest platform provider with more than $72 billion in FUA, a market share of more than 20 per cent.
The total platform market in Australia currently stands at $323 billion, divided over 50 platforms. After BT Financial Group, National Australia Bank and its MLC MasterKey Custom platform takes second position at $50 billion in FUA, while AMP Group closes the top three with $39 billion.
The rapid growth of the industry happened for good reason. Platforms made life easier for many people. For example, they make administration and tax reporting easier for financial planners by centralising all investments of a client.
Before platforms came about, planners with clients who had money in a number of retail managed funds had to file large volumes of paperwork.
The calculation of capital gains tax was cumbersome to say the least. But these days most of the process is automated, leaving time for financial planners to concentrate on what they do best: the provision of advice.
A significant benefit for investors was that these platforms offered them cheaper access to managed funds, because the sheer volume of invested money allowed platform providers to negotiate wholesale prices with fund managers.
The global financial crisis provided the first real hurdle for the platform industry. The closing of a wide range of mortgage and property funds for redemptions during the crisis has caused a technological nightmare, and will continue to test systems for years to come.
BT Wrap has called it the biggest challenge of the past 10 years, and in a rare display of mutual agreement, most of its competitors displayed similar sentiments. The essence of the problem is that the introduction of limited redemption windows has confused the automated systems of application and redemptions.
Much finetuning was required to avoid a situation in which advisers would have to apply manually for every investor and every fund each time a window opened. Some platform providers have opted to put in place permanent teams that continue to monitor the processes involved.
The crisis has also changed the landscape of the industry. Although consolidation of the financial services industry was already in full swing before, the crisis sent this process into overdrive as large foreign players had to redirect their energies to their home markets and sold off their more peripheral activities.
This development saw the Dutch ING Group sell its majority stake in ING Australia, its joint venture with ANZ.
As a result, ING's OneAnswer and Oasis platforms will become part of ANZ. United Kingdom-based Aviva sold its Australian activities, except for the wealth management operations, to National Australia Bank, including its platform, Navigator.
Whether all this merger and acquisition activity will result in a fall in the number of platforms remains to be seen. The current promise from all of the parties involved is to keep the separate platforms and their brands.
This is not surprising, as moving all investments from one platform to another one is a rather costly and time-consuming exercise. Where master trusts are involved it is nearly impossible to move investment products without having to sell and repurchase the underlying investments.
It is also more likely the number of platforms will increase as a result of new platforms entering the market, especially in-house systems developed by smaller dealer groups that do not want to deal with the established systems.
Platforms will continue to add new products. The financial crisis has created a strong demand for more transparency and as a result direct equity investments and separately managed accounts (SMA) have been on the rise.
Platforms have traditionally revolved around managed funds and fund of funds, while equities remained the domain of investors who enjoy trading themselves, but most platform providers believe this will change over the next few years.
Aviva recently added a series of SMA portfolios that are integrated in its Navigator platform, and other providers are looking into similar moves.
This demand for direct investments is further fuelled by the rise of self-managed superannuation funds, a sector that has grown rapidly in recent years and currently represents about $330 billion of invested assets, of which a large part is formed by direct investments.
The move towards direct investment is based on investors' desire to gain more control over their money, and platform providers expect this will result in a further individualisation of platforms.
The challenge for providers over the next few years will be to find the right balance between the efficiencies of combining investors' funds and clients' desire to have a sense of control over their investments.
