Online managed fund distributors jostle for position
It is a phrase that will no doubt end up lost in the cluttered, oversized pile of clichés — that Australian investors are Internet savvy.
Despite this, Australian investors are indeed setting the bar higher for online financial services providers to provide innovation in investor services.
In the past, the hot topic among investors has been fund supermarkets. A fund supermarket is usually made up of a selected group of retail and wholesale managed funds. These funds are available online to investors through the provider’s Web site.
However, without being able to directly invest in these funds, investors have become tired of waiting a week to receive a prospectus in the mail.
Now it seems many online providers have risen to the challenge and added direct access managed funds to their funds supermarket.
However, out of the many providers in Australia it seems E*Trade Australia has stepped clear of the growing pack, by providing a full online service to investors. Fellow providers such as TD Waterhouse, MLHSBC and Commonwealth Securities (ComSec) are not far behind.
E*Trade Australia started offering online managed funds 12 months ago.
General manager of marketing, Bill Wileman, says there is no waiting game with E*Trade, if an investor wants to buy a fund and wants to buy it right away, they can.
“The power of the Internet is that you can have a fully online service, with some of the barriers related to human traits being taken out.”
Wileman says the group’s system has two infrastructure providers, Morningstar for fund research, and Ausmaq for back-office support.
“Within the managed fund section, if an investor wishes to finalise the purchase of a fund, a settlement occurs automatically, usually within three days of the purchase,” he says.
E*Trade currently offers 300 managed funds online. Of its growing number of competitors, TD Waterhouse offers 250; while Merrill Lynch HSBC (MLHSBC) offers 400 and ComSec offers 450 managed funds. The funds provided by the groups range from wholesale funds to retail funds, with the most popular fund managers being chosen from BT, Colonial First State, Rothschild, and Perpetual.
Earlier this month, MLHSBC upgraded its managed funds supermarket online.
MLHSCB chief executive Scott Walters says investors can now buy and sell managed funds online as easily as they do shares.
Walters says investors can choose between more than 400 wholesale and retail managed funds through MLHSBC, from 22 fund managers. Of the group’s managed funds offered online, only 150 of the funds are retail, with the remaining 250 made up of wholesale funds.
“One of the reasons that we offer more wholesale funds than retail is that it is cheaper for investors to own wholesale funds,” he says.
The group, which launched its online joint venture with HSBC late last year, has only started offering a small section of online trades this month.
“We have raised the bar, with the coverage of funds and our ability to trade. Investors can now have reports of their domestic shares, international shares, cash and managed funds reported to their page of our Web site,” Walters says.
He says the inclusion of trading access for MLHSBC’s service was part of the group’s initial plan.
“The days of offering a one-dimensional stockbroking service are behind us. Clients are diversifying, going away from offering just Telstra, looking at term deposits and growth in self-managed super,” he says.
Another leader in online financial services is ComSec, which does not yet offer a completely online package.
The Commonwealth Bank subsidiary offers 450 managed funds, from 29 fund managers. ComSec has been offering managed funds online since late 1999.
ComSec director Paul Rickard says the group offers mainly managed funds, super funds and non-super through its 29 managers.
“We will be [offering a fully online service] down the track, we have a facility where investors can pay online, but it depends on whether the manager can do electronic transfers,” Rickard says.
“We provide a supermarket of the different types of funds, which guides them to best match their needs and allows them to compare funds,” he says.
TD Waterhouse head of marketing, Peter Duvall, says the investor process to access managed funds online within his group are still very much about the Internet and snail mail working together.
Duvall says despite TD Waterhouse offering managed funds online through its supermarket, the group is still not directly accessible by investors.
“For the most part it still requires a prospectus and an individual filling out an application form — in the retail sense,” he says.
Despite not being fully online, Duvall is not worried. He says TD Waterhouse has been operating its online managed funds supermarket for many years in this manner.
So how do these providers manage to earn a crust?
For each of the providers, there are no entry or exit fees, and no transition fee. The only fee is the ongoing fee and the trail.
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