Investment platforms
Investment platforms allow you to hold and manage a portfolio of investments.
The two most common types of investment platforms are master funds and wrap accounts.
- A master fund is an investment tool where a trustee or responsible entity holds your investments on your behalf. Using a master fund you can invest in a number of underlying investments (usually wholesale managed funds) and access a selection of fund managers.
- A wrap account is a service that lets you set up a portfolio of investments. While the service helps you hold your investments, your investments are held in your own name. From a wrap service you receive regular reports on the investments held within the portfolio.
Before you decide to manage your investments in a platform, look closely at the management and transaction fees and make sure that using an investment platform will suit your investment needs and goals.
For example, if you don't have a large amount to invest or if the services provided by a platform don't add value to how you manage your investments, a platform may not be suitable for you.
How can platforms help you?
1. The management of your investments is centralised
- You receive reports from the service provider that consolidates information about all of the investments in your account and your transactions.
- While these reports don't analyse the performance of your investments, having all of the relevant information in one place may assist you and your financial adviser to make this analysis. Centralised reporting may be useful to you and your adviser, for example for tax purposes, to calculate the capital gains and losses you have made for a number of investments.
2. You can usually acquire or change your investments more cheaply or more conveniently
- When you choose to make or change an investment, the service provider will do this on your behalf.
- Your transaction costs might be shared or offset by other clients also transacting on the platform. For example, if you invest in a product from which another client is withdrawing, this means there is no net change to the platform's holdings, and can save transaction costs.
3. You may have access to some investments on better terms that are only available through the platform
- In a platform service your money is often pooled with other client's funds. Pooling funds in this way, means that you may be able to access some funds at wholesale rates that are usually only be available to those investing large amounts at once.
What are some things to weigh up?
1. Your investment options may be limited
Your financial adviser may recommend certain platform providers. Some give a more limited range of investment choices than others. Some give a choice of investment options that may not suit to your needs or appetite for risk. This is why it is important to keep your investment needs and goals in mind, and evaluate the risks and returns.
Listen to more about goals and risks
2. Your investment platform may involve significant fees
If you don't have a large amount to invest, using a high cost platform may not be the best way for you to manage your investments.
For example, not all platforms are offered at the same price, so the benefits of using a platform, such as consolidated reporting and reduced transaction costs, may not outweigh the impact of fees and transaction costs if you are only investing small amounts.
There are a number of fees you will need to consider. You may be charged:
- Platform fees: Fees for joining, using or leaving the platform and fees for making particular transactions
- Fees to fund managers: Managers of the investment options offered through the platform will charge a fee for managing their product
- Fees to your financial adviser: Your financial adviser will charge for giving you advice.
You pay fees out of the money you invest. So, make sure you are paying for services you need. More importantly, fees are often charged as a percentage of your investment. A percentage taken out year after year can have a big impact on the value of your assets over time.
3. You may face costs in changing the platform or service provider
If you decide you've made the wrong decision and want to leave or change to another platform, you might find yourself paying extra tax or extra fees. The way each platform is structured can affect this cost.
If you don't have a large amount to invest or if the services provided by the platform don't add value to how you manage your investments, a platform may not be suitable for you.
When seeking advice also consider how investing through a platform compares to other options, like investing in investment products directly. You may be able to find lower cost investment options that are more suitable for your needs than a platform.
Getting advice
Choosing to use a platform is a significant decision. Before investing and using a platform consider getting advice. Ask:
1. Is a platform suitable for me given my investment needs and goals?
- What are the features and benefits of using a platform to manage my investment portfolio?
- What are the costs of investing this way?
2. Which investments on the platform are suitable for me?
- What are the different risks with each investment product?
- Which choices are suitable for me?
Remember to check that the adviser holds an Australian financial services licence, or is an authorised representative of a licensee.
Information about the platform you should receive
- A statement of advice if you use a financial adviser. A statement of advice records the advice you have been given about the suitability of the platform for you, and any investments to be made through the platform
- Information about the features and costs of the platform. This information can be found in a product disclosure statement or a guide about the particular platform service
- Product disclosure statements are disclosure statements relating to any of the financial products you choose to invest in through the platform.
Benefits to your adviser
Platforms help your adviser
Platforms can help your adviser keep track of your investments. The consolidated reports also make it easier for your adviser to analyse the performance of your investment choices. Remember, your adviser may charge additional fees for their services.
Platforms may pay your adviser commissions
Periodically, the adviser might get a commission based on how much money you have in the platform. There are other ways advisers can get paid and some of them can be quite complicated. Remember to ask your adviser to explain the total impact of the costs and how it will affect your investment over time.
When you get advice, also think carefully about how the adviser might have been influenced by benefits they will get if you decide to use the platform. Platforms and their funds may pay your adviser commissions. The adviser is legally required to tell you about this.
Take time to make your decision
Ultimately, you are making the decision about whether to choose a platform, so weigh your options carefully. Check that the benefits you get outweigh the costs. Depending on how much you have to invest and the complexity of your investments, you should consider if this is a service you really need.
More about master trusts and wrap accounts
FIDO Website: Printed 09/09/2010
