Financial adviser caution generated by the global financial crisis and its continuing aftermath has served to disguise a general shift away from managed funds, according to new research about to be released by Wealth Insights.
The research – the Wealth Insights Planner Segmentation Report – is based on two surveys covering 800 advisers and has revealed the startling bottom line that almost half of financial planners now place only around 40 per cent of investment flows into managed funds.
What is more, the research indicates this trend is likely to continue, with many planners increasingly focused on other options – particularly direct shares.
Wealth Insights managing director Vanessa McMahon said the trend away from the use of managed funds had been evolving for some time, but had been disguised by the fallout around the global financial crisis and more recent events in Europe.
“The move away from managed funds appears to have been masked by the general crisis of confidence in investing right now and the subsequent low rate of net flows into the markets,” she said.
“However, the migration to other investment products is not cyclical, and even when the money starts moving back into the markets these planners will continue to use other investment products,” McMahon said.
She said the bottom line confronting the major managed funds providers was that the financial planning industry had been subjected to fragmentation and the consequent development of new models.
“There are now six different planner groups which behave quite differently in terms of their investment product choices, investment strategies and business,” McMahon said.
She said three of these segments (accounting for almost half of planners) now placed only 40 per cent of their investment flows into managed funds.
“And they expect to decrease their use of managed funds even further in the next few years,” McMahon said.
She said the main reason for moving into other investment products – particularly direct shares – was the need to reduce investment costs.
McMahon said some fund managers had been more seriously impacted than others – something which was being reflected in the decreased level of their inflows.
As well, it was likely that larger players such as AMP and MLC were less affected than some of the smaller groups.
She told Money Management that the research results sent a clear message to the managed funds sector about the need to understand the fragmentation which had occurred in financial planning and the consequent need to adopt a more targeted approach.
“They need to change the broadbrush approach which succeeded in the past and identify the appropriate planner segments,” McMahon said.