Published in Money Management, December 2010 by Milana Pokrajac
“The market tends to work itself out, because investors need to feel as though they're getting value for money.” - Harvey Kalman
Smaller players within the platform and funds management markets have warned that increasing levels of crossownership have further reduced competition and increased the domination of the big banks.
Wealth Within co-founder Dale Gillham claimed the level of cross-ownership was allowing a select few entities to control the price paid by consumers, while the managing director of independent platform provider Praemium, Arthur Naoumidis, said cross-ownership structures were acting as an impediment to new entrants.
According to Naoumidis, major institutions were leveraging the market power afforded by their structures while smaller firms were being left to fend for themselves.
"The [group] can have a higher fund management fee and then drop the cost of the dealer group or the cost of the platform, because they're really cross-subsidising between the three business lines," Naoumidis said.
"Whereas any group that's just a planning group, or just a platform or just a fund manager doesn't have the benefit of being able to cross-subsidise," he added.
Gillham said consumers lacked choice because cross-ownership in the Australian market allows for a select few entities to control the price paid by the end consumer.
According to Naoumidis, this structure allows the big groups to block newcomers in each of the segments. However, he believes hiking up fund management fees to make platform prices competitive and vice versa is not a sustainable model.
"At the end of the day, you can only do that for so long. If you make your funds management fees too expensive, the petite fund managers will come in and win; so it's only short term that they can do that," Naoumidis said.
Equity Trustees head of funds management and institutional sales Harvey Kalman said the market goes through waves in terms of market consolidation, adding that consumers would keep small players in the market.
"The market tends to work itself out, because investors need to feel as though they're getting value for money. If they're not getting value for money, they'll leave and I think that becomes the part of the answer," Kalman said.
However, Gillham believes the Government needs to create a fifth pillar in the banking sector, as well as supporting players and "giving them ways to be able to compete".
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