The drive to reduce fees in the investor Net wars
Direct distribution in shares and managed funds over the Internet is heating up with the entry of a new discount broking player and the aggressive marketing of a new managed funds service.
The Commonwealth Bank's securities business made a splash with the launch of its online managed funds delivery service. Full page advertisements in a number of newspapers carried the slogan "How much of your investment do you lose in entry fees?", putting further heat on entry fees which are traditionally used to pay commissions to financial advisers.
The Commonwealth's Funds Direct service will complement its Internet stockbroking service which has cornered the largest share of the growing discount broking market over the Internet. The site offers investors a choice of more than 200 funds from a number of different fund managers as well as research on the funds offered.
In a separate move, Green Line Investor Services launched its entry into the discount broking market, declaring the discount market will snare about 35 per cent of Australia's overall trading market within three years.
Australia's discount brokers currently hold a comparatively small 7 per cent of the overall trading market, compared to about 35 per cent in the United States and 25 per cent in Canada.
However, this is expected to grow significantly as investor discount brokers offered a fuller range of services and continued to undercut prices of the traditional investing houses, according to David Curtis, Green Line's deputy managing director.
"If we just tracked the Canadian experience we would probably be looking at a market of about 25 to 35 per cent of the overall investing retail market being open to discount brokerage," Curtis says.
Of that, 30 to 40 per cent of trades will be executed online within two to three years, he says.
Green Line, a discount stock broker which was formed when the Canadian based company took over Pont Securities and Rivkin Croll Smith last year, expects to have 35 per cent of all its trades executed electronically by the end of June.
Currently Green Line offers online trading in the United States, UK, Hong Kong and Canada and is looking at expanding into other markets.
Curtis predicts a wave of rationalisation in the discount broking market in the medium term.
"We believe the discount brokerage market is a business that needs a significant commitment and significant investment in it, both in technology as well as training and resources and we don't think that in three years time you'll still see 80 brokers around," he says.
"There will always continue to be room for full adviser brokers as long as they continue to demonstrate what value they are adding. I think there are a lot of customers out there who are really questioning whether their advisers are really making them any money."
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