Money Management-What do we do with the direct investor?

There is little doubt that ASIC’s decision to remove one of the last hurdles for fully fledged electronic prospectuses is good news for fund managers.

There is little doubt that ASIC’s decision to remove one of the last hurdles for fully fledged electronic prospectuses is good news for fund managers.

On top of the win for short prospectuses in CLERP 6, the move will offer huge savings in printing and compliance costs for fund managers. But probably more importantly, it will give fund managers a much simpler document to market their wares directly to consumers.

Recent research by Perpetual Investments discovered that about 20 per cent of the Australian population used managed funds. This is less than half the proportion of Australians who own direct shares.

Simple, online prospectuses offer fund managers the opportunity to bridge that gap. It also opens the floodgates for the bigger players to step up their marketing campaigns to attract direct investors. Clearly there is likely to be a surge in direct investment in managed funds, particularly with the rise and rise of the Internet which offers access to the same fund offered by an adviser without the entry fee.

A couple of years ago, the mere mention of direct distribution would have struck fear into a financial planner’s heart. Today it rates barely rates a whisper.

But while the industry may have come to terms with the issue of direct distribution, very few financial planners have come up with a strategy to try to harness its im-mense power.

One of the big issues facing the financial planning community over the next few years is what to do with the low net worth individual. The money at the moment is with serving the high net worthers. Almost every financial planner is aiming at the same market and ignoring the great unwashed. But the high net worth market will not be as lucrative in five years time when the current shortage in financial plan-ners becomes a glut.

And there are huge opportunities awaiting the financial planner that can service low net worth people efficiently, especially with the imminent onset of superannu-ation choice. Even corporate superannuation opportunities aside, today’s accumu-lators may turn out to be tomorrow’s high net worth clients. Locking in those rela-tionships now may prove to be fruitful later.

But how to do this and still make money is a perplexing question. The answer lies with technology and practice management systems. It is only a matter of time be-fore systems are created that allow financial planners to efficiently offer financial advice over the Internet and efficiently provide a transaction facility that offers a lot of information and only requires minimal advice. The practice management and systems skills will have to be learnt by the financial planner with a bit of help from the dealer.

High net worth individuals will continue to demand very high levels of service but will be prepared to pay for it. Low net worth individuals generally do not want to pay for advice so they will be best served by a self service arrangement.