Move to direct equities is on
Disillusionment with the funds management industry and a hunger for transparency among clients is fuelling a move towards direct equities.
Gold Seal director Claire Wivell-Plater said she is helping planners vary their licences in order to "expand the level of discretionary management they're doing".
"We're seeing a trend towards advisers being more intimately involved with asset selection and using direct equities rather than managed investments," she said.
According to MultiPort technical services director Phil La Greca, the shift away from managed funds is inevitable given the ongoing volatility of markets.
"People want to know: 'Why is my fund doing so badly? Is it because I'm being charged a fortune, or is it because I've picked bad assets?'" he said.
The costs involved with managed investments are a big deterrent for self-managed superannuation fund (SMSF) trustees who already have a layer of costs associated with the upkeep of their fund, according to SMSF Professionals' Association technical director Peter Burgess.
"For some trustees it defeats the purpose of having an SMSF if you're just going to invest in a managed fund," he said.
Instreet managing director George Lucas said his firm is looking to acquire private stock broker firms in order to partner with advisers in the direct equities space.
Instreet already sits on the investment committees of several dealer groups, and is in the process of finalising its direct equities offering for planners.
Lucas put the growing interest in direct equities down to technology changes, the growing popularity of SMSFs and an increasing desire for transparency.
When it came to technology, planners could now buy advanced software off the shelf, rather than having to use something like the BT platform, Lucas said.
La Greca said financial advisers who want to go direct tend to have three avenues in front of them.
Firstly, they can acquire an authorisation to advise and deal in securities from the Australian Securities and Investments Commission.
"That's the simplest approach. You make recommendations on the basis that you will place the orders on the client's instructions - but that's where the time-sensitive stuff comes into play," La Greca said.
Alternatively, the adviser can become a responsible entity and set up what is effectively a managed investment scheme (MIS) with a managed fund structure, La Greca said.
But there is limited transparency for the client with the MIS model, he said.
"The client doesn't see what the manager's doing … they don't know which assets he's bought or sold, or how frequently he's turning them over," he said.
Finally, advisers can go about adding a managed discretionary account (MDA) authorisation to their licence, said La Greca.
"This has bits from both worlds. It looks very similar to an MIS, but the difference here is it's transparent to the clients who will see the underlying assets," he said.
According to Wivell-Plater, MDAs have complex compliance requirements - but they're all upfront, removing the time-sensitivity issue.
"The only ongoing obligation is to report to the client quarterly and annually," she said.
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