The Australian managed funds market can be divided into the two categories: wholesale and retail markets.
Wholesale Funds
The wholesale market is a discretely managed area of investment that includes the industry, public sector and corporate sectors. It is characterised by a low Management Expense Ratios (MERs) with no trailing commissions or entry/exit fees.
Wholesale markets have grown very strongly since around 2003-2004 at 10 percent a year. This is a direct reflection of the strong performance of industry union funds and private sector funds, and achieved despite a reduction in corporate superannuation funds during that time period. It also reflects the convergence of the wholesale and retail markets, with investments made in through platforms in retail flowing into wholesale. Of course, positive returns cannot be guaranteed an infinitum but it may explain why more people are starting to discuss wholesale opportunities and growth.
Retail Market
By contrast, retail funds are publicly available investments managed by platforms that include unit trusts, master trusts and wraps. The main distributors of retail funds tend to be dealer groups and financial planners and these are characterised by higher MERs.
Investment research houses and financial planners act as the gatekeepers to these platforms, providing recommendations on investments. In the past few years the bulk of these investments have been directed towards master trusts or wrap platforms as they offer a quick and easy way to provide and manage a range of financial management products.
Advantages offered by investment platforms
- Consolidated tax reporting on investments
- A large choice of investments (including wholesale managed funds, direct equities and alternative investments)
- They provide support to financial planners and institutions
- Alliances between dealer groups and platform providers
