Listed investments stake their claim

Property would have to be, undoubtedly, the big winner in the flight away from managed funds when markets started to slide south in 2000.

The money flowing into listed property trusts was such that a number of managers found it hard to find liquidity in the market as funds under management climbed and available investments dried up.

But while this posed a dilemma for listed property managers, it confirmed the popularity of property as a listed investment, something groups like theAustralian Stock Exchange(ASX) are trying to leverage into other listed investments.

In fact, such offerings could be said to fall into the alternative market, with much of the industry focused on a few investment vehicles such as managed funds, while others sit to the side out of the limelight.

And it is something financial planners are starting to investigate. A recent survey by the ASX looking into the use of listed managed investments (LMIs) and future intention to use them, indicated strong potential growth in the area.

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Of the 200 planners who responded, 89 per cent said they use some type of LMI while 70 per cent stated they would look to use them more.

However, what this doesn’t pick up on is that financial advisers are the main source of information for many clients when it comes to investing directly.

Consumer research conducted by the exchange earlier this year of 2,400 Australian adults found that 30 per cent of investors with direct share portfolios have sought advice from a financial planner on those shares in the last two years.

A smaller group, at 22 per cent, said their financial planner was the main source of advice on shares.

Levels of ownership are also climbing, with those in the 55 and above age bracket, and those with household income of more than $100,000, having the highest levels of share ownership.

In fact, two-thirds of adults in the latter category have direct shares in their investment portfolio, while half in the former also have direct share holdings.

ASX adviser services manager Debra Surman says this has positive implications for planners, particularly those who are licensed to provide advice on listed products.

And according to Surman, many advisory groups already advise on direct shares but the leap into LMIs is yet to happen due to issues of education, a point made clear in the survey of advisers.

In those findings the reason for the low usage of listed investments was put down to the popularity of managed funds which were said to be better understood, less time consuming, and boasted an established and recognised remuneration structure.

However, theFinancial Planning Association(FPA), in its own research in November last year, found that 62 per cent of principal member dealer groups are now providing advice to their clients on direct shares.

The funds under advice being channelled into direct shares represents about 13 per cent of funds under advice and equates to about $54 billion.

So what has been the driver for the growth in interest in direct shares and LMIs, considering they don’t pay ongoing commissions, are time consuming to establish and monitor, require added levels of education and training, and further compliance requirements.

Surman says feedback from advisers says there are a number of reasons concentrated around the areas of reducing investment costs, enhancing yields and gaining greater control over the tax implications of investments.

However, the major barrier to the take off of LMIs is still education with only a limited number of courses available which, while providing coverage of shares and derivatives, are introductory or general in nature.

But this is starting to change at the dealer level with Surman stating the agendas of financial planning conferences and professional development (PD) days are starting to include more sessions on the uses of LMIs.

“Traditionally, fund managers were the primary investment product representatives to be found at PD days. These days, conferences and PD days tend to be a more balanced mix of managed funds and education on listed securities, such as shares, hybrids and instalments,” Surman says.