Amazon’s arrival in the Australian market has generated intense speculation about the outlook for incumbent players. And while Amazon will undoubtedly take some retail share, research from Ralton Asset Management suggests the major impact of Amazon will be to accelerate fundamental changes in the ways companies interact with their customers.

This was the key takeout from Ralton Asset Management, Head of Australian Equities, Andrew Stanley, speaking at the IMAP Investment Forum on 13 April.

Stanley said Amazon is already affecting Australian

retailers by:

• increasing price transparency;
• decreasing service costs for businesses;
• increasing direct competition; and
• enhancing the overall customer experience.

“We are seeing change coming from a shift in the way customers are shopping now,” Stanley said. “They’re moving away from traditional high street shops to online, so these ‘bricks and mortar’ stores will need to restructure their value proposition and adapt to new retailing trends.”

Although Amazon had only captured 2 per cent of retail sales in Australia since entering the market last year, Stanley believed a structural shift was happening in the Australian retail sector.

“As Amazon continues to innovate, we will see retailers respond. We’re already seeing this with price transparency, which will increasingly become the norm.”

Stanley explained Ralton’s framework for analysing how a business was adapting to the new retail environment, which included:

1. Management capability;
2. Price transparency;
3. Logistics;
4. Route to market;
5. Data analytics;
6. Customer service;
7. Capex and working capital; and
8. Talent acquisition.

“Amazon will accelerate the pace of change in the market,” Stanley said. “There will be retailers that will thrive with this new competitive dynamic, like JB Hi-Fi, while others will struggle and disappear.”

However, he added that Amazon’s entry into the Australian marketplace wasn’t without its own challenges and risks for the online giant.

These risks included: substantial logistics challenges, due to the geographical size of Australia and its limited distribution points; the response of competitors to the Amazon threat; potential anti-competitive behaviour; and a possible political backlash if the Amazon model forces too many businesses to close.

A decade of managed accounts

Also speaking at the IMAP Investment Forum was the managing director of Paradigm Wealth Management, Patrick Nalty CFP®.  

Paradigm is a wealth management business with over 10 years’ experience in using MDA services for its clients. Nalty provided insights in how the business delivered advice through MDA services, which has been one of the cornerstones in developing a broad suite of capabilities in advice and portfolio management for the Melbourne-based business.

With six advisers and 12 support staff, Paradigm services about 450 clients, with 80 per cent of clients using a managed accounts solution.

Nalty advised any planning practice considering rolling out a managed accounts service to first take a solid look at their business and how they want it to look moving forward. He said this included considering three key processes. They are:

• the investment process;
• the communications process; and
• the transition process.

“Firstly, if you go down the managed accounts route, you need to realise you are becoming the investment manager. That means appointing an investment committee, whether internally or externally. We have an independent investment committee that take a macro view for our five model portfolios.

“And as part of the investment process, you need to closely engage with your PI insurer, to make sure they understand and feel comfortable about what you are doing.”

Secondly, Nalty added that the communications process was very important when tailoring solutions for clients. He said Paradigm was currently looking to appoint a dedicated communications person, who would be responsible for providing discreet communication with clients when there are changes to a client’s portfolio.

“When it comes to communicating with our clients, we’re working towards ‘push notification’ through technologies like Smartphones and iPads,” Nalty said.

And thirdly, Nalty advised that in the transition process to a managed accounts offering, businesses needed to carefully consider what providers to partner with.

“Take your time in finding the right provider for your business and make sure they are investing in their technology and capabilities,” he said.

“Managed accounts bring a lot of tightness into your processes. The efficiency gains are massive but it’s not an easy process to undertake, so you need to take the time to get all your processes in place.”

The next IMAP Investment Forum is scheduled for 31 August.

The IMAP Investment Forum is a community of interest for dealer group researchers, investment teams and independent researchers, where they can hear and learn from specialist portfolio managers and chief investment officers of advisory businesses. These experts and advisory professionals provide their insights on the practical issues involved in implementing managed accounts in an advice business.