Not sure where to put this as this impacts Netwealth, Praemium, HUB24, Pinnacle, GQG (less so as they have their own issues), Australian Ethical, and Macquarie. Essentially most large fund managers and the platforms.

For those not aware Macquarie were caught up in the Shield Masterfund fraud, specially for having the fund on their super/pension menu on Macquarie Wrap, where they are the responsible entity ( RE). They have agreed to compensate the investors who fell for the fraud. It’s just over $300M but apparently only be out of pocked about $100M after expected recoveries. Separately NWL and EQT have said it was fraud and are going to court over it saying it was not their wrong doing. I imagine Macquarie caved so as to not destroy their good will in retail banking where they are gaining a lot of market share and party as they have had multiple run ins over the last 2 years with the regulator for other wrong doings in other parts of the business. Sounds like ASIC pressured them into it despite it sounding like ASIC being asleep at the wheel about the fraud despite numerous whistleblowers.

In any case, word is Macquarie has overreacted and their platform, Macquarie Wrap, is looking to shove most fund managers off their super/pension menu. They are looking to reduce the range to 30 large global managers think PIMCO etc which have over $500B in FUM. The issue is most financial advisers use a wrap platform for choice, and ease of use. if you can’t construct a portfolio why use it, and if you do want a simplified investment menu why would you pay a full wrap platform fee when there’s cheaper alternatives. This is a radical change where they are removing something like 450 managers.

I imagine if it does happen, and appears it is, there will be mass outflows from Macquarie Wrap and the platforms will be gone in time. Not sure how much they have exactly but probably $300B or so. Not all of that will leave but a large chunk will. The winners as a result will be the other platforms like NWL and HUB. They will receive a greater share of new client money and also receive some currently on macquarie wrap that can move.

The fund managers though will suffer, like PNI. As i understand it the funds will just initially be soft closed meaning you can’t add funds to the removed funds. In time they will be removed completely from the platform. It is not a major issue but may be a short term impact as funds are moved to other platforms and then reinvested. Some clients with large capital gains can’t move and are likely stuck with the restricted menu moving forward. Pension has no CGT and investment is not impacted but super funds do have CGT and may be stuck to either pension phase or if an client/adviser does not want to move.

Anyway some changes going on and a lot of the find manager/platform/advice industry will be impacted - some positive and others negatively.

HUB looking like its continuing to extend the lead over others with issues at CFS - per the Australian

Colonial First State has been plunged into a new crisis over significant operational issues with its next-generation Edge wealth platform following a botched migration of clients, technology failures and the resignation of staff.

Private equity giant Kohlberg Kravis Roberts and Commonwealth Bank consider options for the business, including potentially shopping CFS around to prospective buyers. KKR spent $1.7bn to secure a 55 per cent stake in Colonial First State from CBA in 2021.

The Edge platform, billed as having world-class technology when launched in 2023, has been plagued by service failures and functionality gaps from the beginning but the issues have worsened in recent months, advisers and industry sources told The Australian.

A forced migration in April that moved clients of another CFS platform, FirstWrap, on to Edge has been a major cause of frustration.

The migration from FirstWrap bulked up Edge’s assets under administration from $6bn to a little under $30bn but the numbers suggest advisers are already moving to rival platforms. Three years ago, FirstWrap was reported as having $33bn in assets. CFS as a whole has about $170bn in assets under management.

One adviser, who previously had $130m of client money with CFS before transferring most of it to rival platform Hub24 this year, described experiencing deliberate service delays.

“When we attempted to transfer a client account, the process was delayed for three weeks,” the adviser, who spoke on condition of anonymity, said. “We were explicitly informed that we weren’t going to get the best service anymore because we were an outgoing business. But the only reason we were leaving was because of the terrible service and technology.”

Delays and more delays

The migration, handled by technology giant FNZ, caused major issues which meant some advisers still have client assets sitting on both platforms nearly six months later and no firm timeline for resolving the problem, people with knowledge of the migration but not authorised to speak publicly, said.

Performance data also failed to move across from FirstWrap to Edge, causing more risk for advisers who are having to manually work out performance numbers for clients. Call centre responses to the problems are often to escalate to FNZ’s back-office team, understood to comprise just a handful of personnel dealing with both the migration challenges and ongoing service requests.

The service pressures have contributed to significant staff turnover. Sources say as much as 40 per cent of Colonial First State’s business development management team resigned in recent weeks following annual bonus payouts.

A Colonial First State spokesman acknowledged the post-migration issues affecting advisers but said the company was investing in Edge to deliver improvements.

“We are fully committed to supporting advisers and have significantly increased resourcing in our platform support, technical and operations teams to address known issues, enhance platform functionality, and streamline processes,” he said.

The claims of additional resourcing and support are at odds with what numerous industry participants told The Australian.

“We are working closely with advisers and our technology partner FNZ to address feedback regarding the platform experience,” the spokesman said.

“Regular platform updates are being released, with recent releases progressively adding historic performance data.”

FNZ crisis and regulatory action

The Edge platform build, also outsourced to FNZ, was an off-the-shelf product which, alongside other technology improvements, is understood to have cost Kohlberg Kravis Roberts and Commonwealth Bank about $400m.

Outsourcing the build was a much cheaper option than buying an industry rival, which was also considered at the time. But it also meant limited customisation ability and foregoing even basic functionality which is standard at many of Edge’s rivals.

Problems with the build emerged early on and the launch of Edge was delayed numerous times until it was finally introduced in August 2023 – close to a year later than promised.

FNZ, which itself boasts assets on platform of more than $2 trillion, is facing its own crisis which has clearly spilt over to Colonial First State.

Founded by Adrian Durham in New Zealand more than 20 years ago and operating in about 30 countries, FNZ embarked on an ambitious global growth strategy in recent years that it couldn’t quite pull off.

Before Mr Durham was ousted as chief executive last year, there were reports of technology delays, migration issues, a staff exodus and remaining workers spread too thinly. The Australian understands there are just a small number of FNZ staff looking after all of CFS Edge client service and migration issues, compounding the ongoing problems.

As FNZ grew bigger and bigger, barrelling through acquisition after acquisition in the past couple of years, complaints exploded, as did the group’s financial losses. The firm reported a loss of $US700m for 2024.

The UK’s Financial Conduct Authority has now imposed restrictions on it, prohibiting it from entering into any agreements with existing or new clients without the regulator’s consent until it improves a series of deficiencies.

FNZ is also battling a $7bn class action lawsuit from staff shareholders who say their shareholdings have been diluted by successive raisings.

With FNZ facing challenges on multiple fronts, there is no sign of the issues with the Edge platform being resolved any time soon.

“Everyone is angry about Edge. It’s been a massive stuff-up with so much money wasted and the damage will take a while to fix,” an industry source told The Australian.

The damage is already shining through in the numbers, despite Edge being just two years old: the platform was ranked eighth out of 10 platforms in a recent Adviser Ratings survey – down from fifth last year. Colonial First State’s FirstWrap was ninth on the list.

The timing is nothing short of painful for KKR, CBA and the 100 or so CFS staff hoping to get a bumper payout from the sale of the business that was valued at $3.3bn five years ago.

KKR tapped Goldman Sachs to do a strategic review of the business in recent weeks, and both sides are now said to be reviewing their options. The Australian understands KKR may be leaning toward selling out.

The revelations emerge amid heightened regulatory scrutiny of superannuation trustees and platform providers following the First Guardian and Shield collapses.

The Australian Securities and Investments Commission and Australian Prudential Regulation Authority have intensified their focus on platforms and trustees, with operational failures potentially attracting regulatory intervention.