Fund performance drives consumer choice
Fund managers worried that consumer pressure will force a squeeze on margins can breath a sigh of relief over a survey commissioned by the Investment and Financial Services Association.
The IFSA Fees and Charges Research study found that only 2 per cent of consumers rank fees as the most important factor when selecting a managed fund. More than half selected past performance as the top criteria for fund selection. Interestingly, only 5 per cent reported that the advice from their financial planner was the most important reason. Even less relied on star ratings from research houses.
But while fees were not generally accepted as the most important factor in selecting a managed fund, the overwhelming majority of people accept that fees are an important factor in their selection.
Consumers also accept fees as part and parcel of a managed fund, the study undertaken by Sweeney Research found. More than three quarters of the 500 people surveyed felt they got average value for money or better.
Sweeney Research director Brian Sweeney says consumers accept that you have to pay a fee for service. More than two thirds of consumers reported they were comfortable with paying ongoing fees to fund managers.
He says consumers have also been experiencing a decade of relatively high returns which alleviates some of the pressure on costs.
However, he also says entry fees and exit fees are unpopular with consumers. Three quarters said tey were uncomfortable paying exit fees, while half said they were uncomfortable paying entry fees.
“There is certainly growing pressure on exit fees. Clearly from these figures, exit fees are a thing of the past,” he says.
Another surprising revelation to come out of the survey was the finding that about half the people in managed funds had not seen a financial planner in the past year. This suggest that the number of consumers seeking to invest directly in managed funds is larger than previously thought.
But while the number of people investing in managed funds without first seeking advice from a financial planner is higher than most believe it is, anecdotal evidence from fund managers suggests that only about 15 per cent of the money that flows into managed funds comes through the direct channel. The research confirms suspicions by a number of industry players that the direct channel is dominated by people investing small sums of money.
Those consumers who have used financial planners are far more comfortable with paying for the advice through a fee for service arrangement. Only a third reported they would prefer to pay the planner by way of commissions from fund managers.
The star rating system for managed funds also appears to not have the strong following that many in the industry believe. Less than half of those surveyed rated star ratings or awards as important in their decision to purchase a particular product.
Recommended for you
After seven years at the company, Iress’ chief technology officer for wealth management APAC, Anthony Gerrits, has departed as the firm commences a search process to fill the role.
With advice firms thinking about scaling up in 2025, research has detailed the main avenues financial advisers say they have used for successful recruitment.
The board of Insignia Financial has reached a decision regarding the possible acquisition of the firm by US private equity giant Bain Capital.
Six of the seven listed financial advice licensees have reported positive share price growth in 2024, with AMP and Insignia successfully reversing earlier losses.
