Choosing Technology Without Getting Caught Up in the Hype with Marius Botha

And which of these conflicts, Michael, are easiest to recognize or to spot? And which of those things are often hidden that, you know, as you said, like a lot, sometimes it's not intentional.

It's just, you know, I think in the back of this little brain here at the back is quite a powerful little... manipulator but um but but but which of these are easy to recognize and which of them are sometimes hidden and we don't even realize that that there is a maybe a conflict specifically from an advisor point of view like when we work with these companies

So, I mean, something very easy to pick up is allocation, right? How much of a portfolio is specifically allocated internally? Then the question becomes, all right, why, right? Is that, again, because you believe it's the best and are they held to the same or higher standard than external? And then similarly, fees.

It always ends up in the fees.

So a lot of these arrangements are cross-subsidized.

So you'd see a platform fee theoretically being zero or very low compared to if you use an external solution.

But those platform fees are very easily made up and cross-subsidized by fund fees.

So you can do a look through and you don't just look at the ticket price and you look at the all-in price at the end of the day, it all stacks up.

And the EAC is actually a fantastic addition to our industry for, I think it's about 10 years now, where a lot of that does creep through because they are required to disclose that.

But then the question is, all right, why? Not just accepting that at face value, but understanding what that is really remunerating and how it trickles through at the end of the day.

there is a lot of cross subsidization in the back which you don't see right and it could be pressure that again we are not aware of um so it's just questioning like i said it's not to say that it is wrong it is just to ensure that there's sufficient governance and independent governance internally within those businesses as well to ensure that when these type of arrangements occur that it isn't commercially driven or solely commercially driven right that those decisions are made at in the best interest of the the client at the end of the day

um so something that happens often, I think, and as businesses grow and as you maybe get investors into the business itself, I'm not talking about investors buying your funds.

I'm talking about people that start owning a piece of you know, your business is maybe you want to expand and you attract investors and, you know, that kind of thing.

And you get more and more shareholders or new shareholders or whatever the case may be.

I mean, there's often this thing, and this is what I see often in big businesses is that, it becomes so much more about shareholder and shareholder value than it does about what's the right thing to do for the client sometimes.

And especially then if there's this commercial pressure, you know, sales are down or maybe it's flat or whatever the situation might be and whatever the influences might have been that caused that.

But how does these things all influence investment decisions like when you decide I mean you're talking about like when I include my own funds or include other funds like am I like I mean when these kinds of things starts happening so wherever that pressure may come from as well like it might be even from your own internal funds that there might be pressure you know it might be so there's so much here to think about but I mean how do we how does that impact decisions or at least the pressure that comes with it?

I mean, often what you see is once inflows start to draw up, that's the quickest that you start to kind of self-preserve, right? And it's subtle.

It is limiting access to competing providers potentially on your platform.

restricting or increasing allocation to your own portfolios, not necessarily, again, because it is on merit, but purely because of the impact on bottom line revenue at a group level or at a shareholder level, or just being reluctant to fire one of those managers for underperformance or even rebalance a portfolio.

So let's say you've got a particular market view But taking that market view, theoretically, just being completely internally allocated is going to move you from a higher margin business to a lower margin business.

Let's just take, theoretically, equities and fixed income.

Fixed income is much cheaper.

So let's say that a particular investment decision requires that type of allocation.

They might be slow or reluctant to do that allocation, even though they know it's in their best interest to do so.