The crossing of forbidden lines

Happy once with its own domain of large institutions, wholesale fund managers are now looking to access retail investors direct with mezzanine investment products such as master trusts and wrap accounts.

Regarded as a development in the overall retailisation trend, wholesale fund managers are pushing the boundaries into traditionally retail space.

Small, medium and large wholesale fund managers have revamped their existing products and re-badged external products aimed at making them more attractive to the retail investor.

While the trend is part of an overall convergence of the wholesale and retail markets, wholesale fund managers seem reluctant to confirm their push into retail.

For as lucrative as it may be to have inflows pouring in from both sectors, the traditions of each market are still seen as defining the boundaries between the two markets.

“Our push into retail wasn’t a deliberate thing. We don’t really play in the retail market,” State Street Global Advisors, Australia director of business development, Bernard Reilly says.

“Our retail approach is through our master trust relationships, and relationships with banks,” he says.

Reilly says with the master trust industry growing so rapidly, this is one clear way the group is moving to access retail clients. He says the group is also offering retail investors access to exchange-traded funds (ETFs).

“We see from time to time, that we have retail investors interested in our products. Or we have a retail investor call up who wants to put money in the global equity product, because either they or their spouse has an investment in our super fund and they are happy with the returns,” he says.

“We often do see that. There is a crossover happening,” Reilly adds.

Barclays Global Investors (BGI) is another wholesale manager that is reluctant to voice it has pushed into retail space.

“We don’t do any direct retail. We offer IDPS compliance funds to master funds and wrap accounts,” BGI’s Adviser Services director, Michael Ohlsson says.

Ohlsson says these funds are feeder funds into the groups underlying core wholesale funds.

“Barclays is not competing for distributions. We use master trusts as our distribution arms,” Ohlsson says.

“We have about 26 master fund and wrap account clients, and have had them for some years,” he says.

Despite Barclays' reluctance to state that it is now offering retail investors with other options, Ohlsson says there are certain areas wholesale managers need to consider when preparing themselves for more of a retail presence.

“To play in the retail market, you have to have a strong brand and spend money on the brand and used the intermediaries to promote to the investor. For example, Asgard took their first step into television, supporting the advisers by providing a platform for the mums and dads,” he says.

“If you go into retail, you have tens of thousands of clients and need to spend a lot more money on systems and client call centres. In the middle of that, is something called the ‘instavidual’. It is the master funds and wrap account which only have one investor, but you do have to service the advisers and planners,” he says.

Ohlsson says wholesale managers also need to pay attention to where the money flow is going. They need to ascertain which sectors of the market are the winners. He says if managers look at sector reports, master funds and wrap accounts are the big winners, with the big looser being corporate super.

It is Ohlsson’s belief that a lot of organisations are saying they don’t want to be apart of corporate super anymore.

While both Barclays and StateStreet are wholesale fund managers, it is interesting to note how their products are becoming more retail-like.

Reilly says there is no limiting the scope for growth in the merging of the retail and wholesale markets, particularly with the continual consolidation of large fund managers.

Clearly being big is important in the industry, however, what both Ohlsson and Reilly have found is that retail clients/investors are really calling the shots, and asking their respective groups for more service, than one individual manager can offer.

It is then clear that with wholesale fund managers offering a broader range of services, there is an important step taking place in the progressive retailisation of both the retail and wholesale sectors.