What is an investment platform?

Two women converse at a cafe table with an open laptop and orange mugs nearby.

You may have heard of investment platforms (or master trusts or wrap accounts, which are two types of investment platforms).

An investment platform is an administrative system for your investments. Platforms offer a range of investments and services, all in the one place. They consolidate reporting, transactions, tax information and portfolio management into a single system.

Platforms can be used to manage your super and non-super investments.

While that might sound simple, platform products offer access to thousands of investment options, managed portfolios, listed securities, term deposits, cash accounts, insurance options and more, each with different levels of risk, liquidity, fees and diversification. With access to a wider range of investment options with different risk profiles, comes a level of complexity.

Before you invest with a platform, it’s important to weigh up the potential convenience against the nature of the arrangement and cost.

Investment platforms have become increasingly popular with superannuation investors. However, ASIC is warning superannuation trustees to address stark and persistent failures to protect retirement savings, including gaps in the monitoring of harmful advice fee deductions, unusual fees and investment patterns and high risk superannuation switching activity.

How investment platforms work

Investment platforms act as a central hub for your investments. They typically provide:

A menu of investment options – this can include managed funds, Australian and international listed securities, term deposits and cash accounts.
Consolidated reporting – one set of statements covering all your investments.
Administration and compliance – administration and compliance services, tax reporting and investment rebalancing.
Portfolio management tools – such as dynamic asset allocation, model portfolios and capital gains tax optimisation.
Trustee services – where a platform is used to invest superannuation, the platform can also provide trustee services.

Investment platforms are generally only made available to Australians via a financial adviser.

Pros and cons of investment platforms

Pros

Convenience and consolidation – all investments and reporting in one place.
Investment choice – access to diversified portfolios and specialist managers, as well as self directed investment choice.
Trustee services – platforms can be a more convenient alternative to self managed super fund (SMSFs) for investors who want control without the burden of trustee and accounting responsibilities. Unlike SMSFs, platform trustees must meet Australian Prudential Regulation Authority (APRA) regulatory obligations.
Advanced portfolio tools – such as tax optimisation, rebalancing, model portfolios.

Cons

Potential for high fees – there is a cost associated with the convenience of consolidated reporting and administrative and compliance services. This means that fees might erode returns for smaller investment amounts.
Complexity – platforms offer thousands of investment options, making them difficult to navigate without professional advice.
Advice – you may need an adviser (with the associated costs) to join a platform and continue accessing its features.
Engagement – platforms are not a set and forget. Even if you have an adviser, you need to make time to engage with your investments.

Who could consider an investment platform?

Platforms may be worth considering for investors with larger investment amounts, those who want a high degree of control over and engagement with their investment choices and/or those already working with a financial adviser.

Platforms may not suit people with low balances, who may not need or benefit from wide investment choice, where different layers of fees can erode returns, investors who prefer simple, low cost products and/or those who do not want or need adviser led portfolio management.

Source: MoneySmart