Advisers remain shy of direct equities

Advisers are generally failing to embrace direct equities despite widespread dissatisfaction over managed fund performances, according Lonsec manager, stockbroking, Jeremy Pree.

“Advisers talk a lot about using less managed funds and more direct equities, but I think at this stage there’s been a lot more talk than action.

“Certainly, there are some advisers that are disenchanted with some of the fund performances and asking themselves why they are paying a management fee.

“But I think the issue is that moving to a direct equities solution is not necessarily a speedy process because there is the potential for more administration than for say managed funds, possibly requiring new infrastructure.”

Similarly, according to Pree, there has been an awful lot of talk about take-up into separately managed accounts (SMAs) and individually managed accounts for direct equities, but again “the traction has been very, very slow to date”.

He based his assessment on the results of some of Lonsec's direct equity model portfolios currently used on some SMAs offered by providers.

“We can see how money is flowing into our models on the provider SMAs we currently use, and it's very slow and steady over a number of years.”

However, Pree believes there will be a lot more advisers considering direct equities in the future, and that the SMA model will also gain some traction.

“It’s just going to take some client education, adviser education and maybe some tweaking of the fees to make it compelling,” he said.

In addition, Pree pointed to the ongoing investments in “very, very expensive” SMA solutions by the large institutions and banks as evidence of future growth for SMA’s.