This year is shaping up as the year the US goliaths finally make their mark on the Australian retail financial services landscape.
For years the Australian financial services industry has looked across the Pacific for future trends, but none of the US behemoths have grabbed a stranglehold on the retail market here.
Giants such as Vanguard and Fidelity have held beachheads for a number of years, but even these two have failed to build significant retail market share.
However, Vanguard’s move into no-load retail products and its superannuation outsourcing joint venture with MLC and Fidelity’s alliance with Perpetual could turn their fortunes.
Other major players, such as Alliance Capital, have signalled intentions to gain a foothold in Australia but are yet to make their presence felt.
And it is not only new players that are bobbing up on the horizon. Existing US-based players have sized up the market and are ready to play their hand.
As reported in this edition of Money Management, Merrill Lynch is about to go public on its “total financial solutions” strategy which includes a shift in focus towards distribution. Massuchusetts Financial Services (MFS) also recently made its first foray into the retail market through a distribution arrangement with Count Wealth Accountants.
What MFS, Merrill Lynch and new BT Funds Management parent have learnt is that distribution is all-powerful in Australia. Whether you own distribution or you have significant influence over distribution doesn’t matter. Any retail strategy must win over the people who are going to deliver product to the final consumer if it is going to succeed.
What is becoming abundantly clear is that no matter how much noise Financial Services Minister Joe Hockey or Prime Minister John Howard make about Australia’s role as a financial services capital, the Americans will land here anyway.
So what are the implications for the Australian market of this invasion?
First we are certain to see a further tightening of management fees which in turn will put pressure on commissions paid to advisers.
Secondly, no-load funds will inevitably make their mark here as consumers become increasingly aware of the discount fees on offer. This in turn will threaten up-front commissions for advisers and may cause many to consider the benefits of a fee-for-service practice.
Thirdly, as margins fall, scale will be even more important to fund managers.
Just to get a feel for the scale of the industry in the US, the market’s biggest single fund, the Fidelity Magellan fund has just surpassed the $100 billion mark.
Not bad, considering our biggest retail share market fund, Colonial First State’s Imputation Fund, has just over $2 billion under management.
No matter which way the industry turns, one thing is sure, and that is that our industry is sure to mature at an increasingly fast pace.
