IFSA Conference – Powerful predictions for the coming years
The funds management industry should brace itself for an explosion of product launches in the next few years, according to BT Funds Management’s Terry Power.
Power says there are already more than 100 overseas fund managers operating in Australia which is likely to proliferate even further.
"Overseas managers are determined to enter the market and for the first time they are serious," Power told the recent IFSA conference.
But the surge in funds management operations setting up to take advantage of the estimated 20 per cent growth in funds under management every year for the next five years will not be limited to overseas managers entering Australia.
Boutique fund managers will continue to spring up and will steal market share from existing players, Power says.
Not only will there be more managers but each manager will also be carrying more products. Power says the number of funds offered by the average fund manager has increased from 8.5 to 17.5 in the space of only a few years. He says the situation in Australia could soon mirror that of the US where there are more managed funds products than underlying shares.
The recent surge in the popularity of sector funds is a case in point.
"We haven't seen anything yet. There will be a host of launches as managers strive to copy each other," he says.
"A couple of years ago, ethical funds were marginal at best, this year there will be two entire conferences based around ethical funds."
The problem for fund managers is that many of these funds will not reach critical mass. Power says a manager the size of BT needs to bring in $50 million in the first two years of a fund's life and then grow to $100 million within four years to have the critical mass to sustain it.
As the number of managers continues to boom and the Internet economy continues to poach top people, fund managers will increasingly be hit with the problem of how to retain their best staff.
"People like Schwab in the US says that their biggest problem is not with their staff calling sick but with the staff calling in rich," he says.
Terry Power on the future of financial services:
Financial advice will become even more important
The Internet is the irrevocable enemy of profits
Funds under management are likely to grow 20 per cent per annum for the next five years.
Financial planners must remain united. The fact that the past three FPA chief executives have left before the end of their term is "a worrying trend".
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