Uptake of IMAs overestimated
The take-up of individually managed accounts (IMAs) in Australia will not be as great as the US experience, saysHSBC Asset Managementhead of retail Rick Villars, who says the potential for the products has been over estimated.
Speaking at an adviser briefing in Melbourne, Villars says the take up of the products will be limited to the top end of the market with his comments based on his experience at Wells Fargo in the US, specialising in IMAs before moving to HSBC and arriving in Australia earlier this year.
According to the Financial Resources Centre, there will be about $1 trillion in IMAs by the end of this year in the US. This will grow to $3 trillion by 2011.
But Villars argues the distribution of wealth in the US is very different to Australia and this will impact on the success of IMAs here.
In Australia 94 per cent of households have less than $250,000 of liquid assets. While they account for 31 per cent of the nation’s liquid assets, it is divided among nearly 700,000 households. The households that have more than $3 billion of liquid assets account for 0.2 per cent of the total households, that is, 13,000 households.
“An IMA in Australia will need a minimum investment of $200,000, but probably more likely $250,000,” Villars says.
The reasoning behind the high entry levels is to cover the complex back-office operations, he says.
In the US, large IMA managers can have up to 50 sponsor programs which means every back-office transaction has that multiple built into its costs.
US IMAs with $US100,000 of assets charge clients a fee of 230 basis points. An IMA with $US10 million of assets would charge 120 basis points.
Villars notesASGARD, which has launched its first IMA, is charging anything between 2.57 and 2.08 basis points depending on the amount of assets.
To keep these fees down, Villars says companies will be in for a big technology spend to automate as much as possible.
“In five years time, we will only see major companies offering platforms in Australia and it will be due to the technology spend required,” he says.
“But in the meantime, we will see every fund manager chase ASGARD to get IMAs in the market.”
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