ACCC changes its view on platforms

Back in August 2008, when the Australian Competition and Consumer Commission looked at Westpac's proposal to merge with St George Bank, the competition watchdog said its biggest concern was about the impact on competition of the combination of the banks' wealth management administration platforms, BT Wrap and Asgard.

The ACCC has again focused on wealth management administration platforms in its deliberations over the proposed merger of National Australia Bank and Axa Asia Pacific.

In each case it has come to different conclusions.

When looking at the Westpac bid for St George it reported that it had received mixed responses on the question of the degree of substitutability between master trusts and wraps.

It was a question of how specialised the platforms are. The merged group would be dominant in the wrap account market but a number of other groups provided master trust services in the platform market.

The commission was interested in finding out how easily a financial planning group could take its business from a wrap to a master trust or some other kind of service.

In the end it found there was no threat to competition. Its final report said: "Further market inquiries have since revealed that there are a range of substitutable products, including master trust platforms and, increasingly, separately-managed accounts, available to financial planning businesses and investors."

Eighteen months later the ACC has said it will oppose NAB's proposed merger with Axa and "at the heart of the decision are concerns about innovation and, as a consequence, future rigorous and effective competition between retail investment platforms."

The ACCC found that a merger between NAB and Axa would result in a substantial lessening of competition in the market for retail investment platforms for investors with complex investment needs.

When Westpac merged with St George the combination of BT Wrap and Asgard created the biggest wrap provider in the market. But in the case of NAB and Axa, Axa is not a force in the wrap market (it has a product under development).

The ACCC did not refer to the Westpac decision in its press release on Monday, so there is no explanation of its contradictory about-face.

The chief executive of Praemium, Arthur Naoumidis, said the latest ACCC commentary on platforms was "a load of rubbish".

Praemium is an IT company that develops portfolio administration systems. Its clients include the wealth management group BlackRock, which operates a separately managed account service designed by Praemium.

Naoumidis said: "The ACCC is talking about the deal stifling innovation but wrap account technology is 15 years old. Innovation is coming from a different direction now, with the development of separately managed accounts."

Another curious finding was that AMP, which has a retail mastertrust but not a wrap account, is not a strong competitor in the wrap market (the essential difference between a wrap and a mastertrust is that in a wrap legal ownership of the assets is with the investor, while a mastertrust is a collective investment with assets held in a trust).

Yet AMP offers two wraps through white label arrangements with Asgard and Macquarie. Is the ACCC saying that a business that offers a product through a partnership or outsourcing deal can't be a strong competitor? That would be a very strange finding.