04.Watch out for the traps
The way they’re sold. Some platforms are only available through financial planners, who often receive higher trail commissions than for recommending ordinary managed funds (see What are the fees?
for more). What choice?
Some financial planning houses recommend just one wrap or master trust provider. Ask your planner how many platforms they recommend and the reasons for those recommendations (find out about fees, commissions and if there’s any mark-up to wholesale fund fees). Conflicts of interest
: ‘Over-ride’ commissions are sometimes paid by platform providers to financial planning groups for the big number of investors they bring into the platform. This could cause a conflict of interest — has the adviser’s commission or ‘over-ride’ payment been put above your best interests? Is it ‘open access’?
An in-house fund may be operated by your financial planner and open only to the clients of their business. If you want to change adviser, you may have to leave the fund, possibly involving exit fees and Capital Gains Tax. Open access funds let you change adviser without leaving the fund. Complexity
— you’ll probably need to use a spreadsheet to compare fees for different platforms. All costs are set out in Product Disclosure Statements, but understanding and comparing the myriad fees and other details in brochures running to more than 50 pages can be very difficult. Limited choice of funds
. The fund manager marketing the platform may not include all available funds on its investment menu. What choice and features do you need?
Some platforms offer hundreds of investment choices but there’s no point paying for options you won’t use. One fund manager told us that around 80% of investors in some ‘full-service’ platforms have money in just 20% of the available funds. ‘Nil entry fee’ options can be more expensive
— if it means you’ll pay higher ongoing and/or exit fees instead (that may also be true for ordinary managed funds). Platforms pushing their own products
. Be aware thta the wrap or master trust provider may include many of its own managed funds. Choosing the wrong one
. There’s a platform for almost everyone now, including smaller investors. Making your choice based on short-term needs may be ill advised — a master trust geared to small amounts may be suitable now but what about in a few years when your investment has (hopefully) grown? If you decide to switch to another more suitable master trust you might end up with a pretty hefty Capital Gains Tax bill when leaving the old one. This doesn’t apply to wraps, which allow you to transfer in and out without triggering a capital gain or loss.