PPSvs HUBvs OVH, page-3

PPS was more an admin service, it originally won lots of business from accountants with HNW clients who held passive equity portfolios, and refused to pay the fees of managed accounts. It was labour intensive at both ends, and dogged by errors. Never profitable, it recapitalised several times. MGP was closer to a pure managed account, but went down the managed duscretionary account licence path and has been somewhat static. NWL and HUB appear broadly similar, combining wrap and managed account technology. OVH was the original DirectPortfolio/ShareInvest, both pure managed accounts and interestingly, set up as managed investment schemes for licensing. While this meant they had to comply with extra capital requirements and compliance, it gave many benefits and they were extremely administratively efficient, and profitable. However when the founders sold out, these managed accounts were closed as the new management tried to be everything to everybody, and their new platform meant they also have been recapitalised several times.

BT or Macquarie or AMP should have bought DirectPortfolio instead, but baulked and instead tried to copy the software, but relatively unsuccessfully. Hub is very similar design to DirectPortfolio, and is therefore gaining some efficiencies of scale, but is not as profitable as I would have expected by now. We don’t know how much margin is being given up by negotiations, but to be attracting 10% of industry flows is a phenomenal sales effort, given they are under 0.5% of the industry. I got into Hub very early, and after a ninefold rise in four years its now my largest holding so its a hold for me and I’m mindful of its stellar rating, but its stellar growth is still exponential.