The retail financial services industry has seen an explosion in funds being channelled into master funds and wrap accounts at the expense of being invested through individual unit trusts, according to an industry survey conducted by research houseDexx&rforMoney Management.
For the year ending December 31, 2002, master funds and wraps increased their share of the personal superannuation (PS) market from 30 to 50 per cent, while their concentration within the savings and investments (SAI) market rose from 11 to 28 per cent over the same period.
This shift has benefited many of those providers only offering master fund and wrap account services, but has been a mixed blessing for those organisations which historically had been the recipients of the higher management fees accompanying direct investment rather than administration of retail funds.
“The general thrust, from a product point of view, has been a shift away from individual unit trust products towards wrap accounts or master funds as the main retail offering,” says Dexx&r managing director Mark Kachor.
“The major shift has been away from investing people’s money to administration of that money, and what we’re looking at here [in the figures] is what is coming through the front door and not necessarily on who is doing the investment management of the money,” he says.
UsingBTas an example Kachor says there has been “a clear movement of funds out of BT on the investment side, but that a significant portion of these funds appear to have stayed with the group and have been switched to BT wrap products”.
However, the margins for administration are significantly less than investment management.
“BT has a total of $7.4 billion across personal super, investments and allocated pensions and about $3 billion is through a wrap operated byCount. Suggestions in the market are that this $3 billion was redirected from BT retail products into its wrap,” Kachor says.
However, the Sydney-based researcher also believes there has been a strong outflow of retail funds from BT over the past 12 months, and without the inclusion of the Westpac products in the BT numbers, the figures would have been worse.
Macquariemoved into poll position in the SAI market, predominantly due to the $8.8 billion in the Macquarie Cash Management Trust.
“That cash management trust is used by a lot of brokers as a holding facility for clients’ money, for pre-trade and post-trade cash holdings. So it’s not really a retail managed fund and the figures are a little deceiving there,” Kachor says.
Kachor adds the tables must also be read in the context that many managed funds declined in value by about 10 per cent over the year due to market movements. And in such an environment, there’s no real incentive for investors to plough more money into the various products on the market, therefore explaining some of the declines in the figures.
In the personal super market, AMP retained its poll position with over $13.5 billion in assets, whileMLCcame in at second place with over $10 billion. The lion’s share of the AMP and MLC monies were channelled through their respective Flexible Lifetime Super and MasterKey Superannuation master funds.
Both the PS and SAI markets remain dominated by industry heavyweights, with the top ten players in both markets accounting for more than two-thirds of the assets. Around 71 and 67 per cent of the PS and SAI markets, in terms of assets, were accounted for by the top 10 organisations.
At the smaller end, Kachor says “those with a small amount of funds under management are going to have to assess their strategy, although some of the players down the bottom are just ‘tiddlers’ which were mentioned for matters of completeness and often offer those services to customers as a side to their main business interests”.
Towers Perrindirector of asset consulting services Paul Laband says clearly there’s been a lot of consolidation in the industry over the past few years resulting in concentration at the top end.
“I think brand name is very important because in the retail market, brand or image is often more important than the outcome [return]. The other thing is control of distribution because clearly a lot of the big players in the top 10 are banks, and whether it’sCommonwealththroughColonialor NAB through MLC, these all have extensive distribution channels and the ability to sell products,” Laband says.
However, he adds that performance remains an important factor in determining fund flow. For instance, Laband singles out the case ofPlatinum Asset Management, which appears in 12th position in the SAI table with $2.6 billion in retail funds under management.
Laband says Platinum has not been pushing too hard in terms of marketing or branding but through strong performance has seen solid retail fund flow into its Platinum Investment offering.
