Welcome to the Mclowd Community Newsletter.

“If future returns are closer to 4% than 8%, losing half of that return in frictional costs is going to become unpalatable. In a world of exceptionally low interest rates, fees are finally going to get the investor attention they deserve.”
AFR, July 13th 2016


Understanding context becomes extremely important when that context is deflation.

Over the last ten years monetary authorities around the world have driven the yield curve down to the point where the German Government can now issue a ten year bond at a negative yield.

Let’s be quite clear here. That doesn’t mean the secondary market drives the yield to maturity on an existing bond negative. It means:

  • The bond generates no interest income for ten years
  • You get back less (in nominal terms) than you put in

While it has taken a few years to bite, SMSF trustees (whose asset allocation is skewed towards cash and fixed interest securities) are now seeing the gross yield on their retirement assets slashed.

If these authorities had understood the deflationary context in which they are operating (and specifically the inevitable journey towards a Zero Marginal Cost Society), they would have understood that their efforts are absolutely futile (and as I said in a recent guest post on the Afiniation website, are actually driving deflation, not countering it).

The impact on business models is already being felt by insurance companies, and retail banks will be the next cab off the rank.

But over time (and as illustrated by the AFR quote above) a world where gross yields are in the low single digits will begin to threaten the entire global asset management value chain (which as currently configured cannot seem to operate at anything less than 100bp).

The SMSF Value Chain

One of the larger SMSF administration firms recently announced their migration from BGL Desktop to that company’s cloud offering: SF360.

This is an outcome which reflects the enormous effort that the BGL Team have put in over the years, and is one for which they can be rightly proud.

Calculated on the basis of the published rate for that product, the transaction would generate a licence fee of $800,000 per annum (ex GST for 5,000 Funds).

That figure is ironic, because it is almost the same as the current Mclowd Pty Ltd balance sheet.

The fact that you could just about squeeze the Mclowd Community’s entire capital base in to a single incumbent vendor invoice illustrates:

  • The level of cost reduction that is actually possible within the asset management value chain
  • The role of governance in driving that outcome

Sydney Training Seminar

A few seats are still available for our next Training Seminar in Sydney on July 26th.

For more information and to register click here.


The SF360 implementation described above sits within a value chain that looks like this:

  • Practitioner (accounting / advice)
  • Wholesale SMSF administration firm
  • BGL

Not surprisingy, the cost of this multi-layered, practitioner-centric workflow runs in to thousands of dollars every year.

The problem now is that the gross yield on the assets which are being managed via that workflow can no longer support those costs.

What is going to happen is that the 5,000 trustees will come under increasing pressure to migrate away from that value chain in order to protect the net return on those assets, and hence retirement outcomes.

When they do the Mclowd Community will be there: ready, willing and able.


Ashley Porter
Managing Director
Mclowd Pty Ltd