The funds management industry has been lambasted for its “uninspiring” lack of product innovation — a situation that if not righted will push more and more clients into direct share ownership.
Credit Suisse Asset Managementmanaging director Brian Thomas and industry consultant Tom Collins speaking at a Sydney conference today slammed the industry for being too full of groups with an “engineering” rather than “marketing” mentality, which left no room for creativity.
Collins argued that the industry was “lazy” and “arrogant” largely because “life has been too easy for the past ten to fifteen years”.
Both agreed that the dissatisfaction with fund managers and unit trust type investments would lead to the growth of direct share ownership and investment vehicles such as the individually managed account (IMA).
Thomas says he expects the size of the direct market to double in the next five years, while Collins citedAustralian Stock Exchangeresearch showing planners are now selling more direct shares than stock brokers as indicative of this trend.
Collins also says that fund managers which are now moving into the direct investment space have become the “quiet competitor” of unit trusts.
Collins says the move to direct share ownership will come largely due to the dissatisfaction with the inefficiencies of funds management structure, such as the retail application and redemption process, and because these groups are trying to do too much, leading to higher management expense ratios for clients.
However, Thomas says due to the recent downturn in investment markets leaving many investors dissatisfied, as well as the advent of the Financial Services Reform Act, the “conditions are in place for innovation”.
Collins agrees, saying there is an “undercurrent” of change due to fund managers realising they can no longer continue as they have over recent years.
Thomas says some of the main barriers needing to be overcome will be the design of products through committees, that he believes tend to “emasculate products into nothing”, as well as a lack of fund manager competition in the market stifling innovation.
Thomas says the product innovation may not come in terms of performance, but in the way they are packaged and marketed to the retail market.
The pair were speaking at today’s Product Innovation and Design conference in Sydney.
