Aussie investors shun funds, analysts call for simplification
Investing basics: A survey has revealed Aussie investors think managed funds are too complex and expensive – preferring the relative simplicity of stocks and ETFs.
A survey has revealed Aussie investors think managed funds are too complex and expensive – preferring the relative simplicity of stocks and ETFs.
The 2017 Investor Product Needs Report, based on a survey of 6,182 investors, indicated that more than half, 58 per cent, of Australian investors don't intend to use managed funds in the near future. When asked why they are shunning funds, one of the top two reasons was the complex application process. The other was cost.
As we revealed last week, buying units in a managed fund can be done directly via a paper application form – which can be as long as 27 pages.
Details required include personal details – name, age address, the provision of identification documentation – drivers' licence, passport, taxation information, and the provision of signatures and declarations.
All copies of identification documents you provide must be certified a person authorised to do so.
Alternatively investors can buy managed funds through their adviser. However, this service isn't free. If you work with an adviser, you'll have to pay a fee, either a fixed amount based on hours worked, or a percentage of your invested money.
There is a third way; launched in 2014 by the Australian Securities Exchange, the mFund service allows individuals to buy and sell unlisted managed fund through their broker, the same way as you would trade shares.
The service uses CHESS – the ASX's electronic settlement system, to automate and track the process of buying and selling units in funds and does not require you to complete paper application forms.
How would individual investors like to access managed funds?
The mFund service is still in its infancy and is not well known among retail investors. According the Investor Product Needs survey, among those investors who intend to invest in a managed fund in the future, their preference for accessing the market is as follows:
* 30 per cent would prefer to invest directly with the fund manager
* 18 per cent through their online brokers, not using the ASX mFunds service
* 16 per cent through a financial adviser
* 7 per cent through the ASX mFunds service
So, what can be done?
Morningstar senior analyst for manager research Ross MacMillan says it's almost inconceivable that retail investors are still required to fill out tens of pages of forms, especially in an era of rapid technological advance.
"We expect of the fund managers that we analyse that they invest in the latest innovations," he says.
"With the rise of fintech, and innovations like blockchain, AI and machine learning, it's beyond belief that retail investors are still expected to print out and fill in paper forms."
He says, in reality, there's no motivation for insiders to change the system.
"If you're with an adviser, yes, it's much easier, but there are disadvantages, and there are few incentives for anyone – not the advisers or investment managers – to bring about industry wide change."
Ross suggests that the complexity is one of the reasons why the industry is seeing such a strong take up of ETFs and LICs among retail investors. "They're listed investment products that can be accessed via an exchange almost instantly. And now with the proliferation of active-ETFs, we'll see active strategies become more accessible."
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Emma Rapaport is a reporter with Morningstar Australia, based in Sydney.
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