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Financial Services Executive, Mike Ghenta, shares his insights on what's currently happening in the direct to consumer market, and what's on the horizon.
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What are some of the trends we are seeing in the industry that might indicate a shift to a direct to consumer offer?
There are a number of trends in the Australian market pointing towards a stronger case for a direct to consumer (D2C) offer:
- Continued pressure on fees from index funds and regulators, which can be mitigated by increasing distribution in the largely untapped D2C channel.
- Intermediaries continuing to offer costly and bundled advice, platform and product, which increases the value proposition of an unbundled and affordable D2C.
- The emergence of data as a strategic asset to maximise sales/distribution; this can only be achieved by owning the client.
- Regulatory changes aiming to increase competition in the market, i.e., new open banking requirements.
- New technologies and ASX trading platforms (mfund), which facilitate a D2C offer.
- Development of a D2C channel by Vanguard in the superannuation space.
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What are some of the barriers for consumers, and how can organisations better assist in these areas?
For consumers, the main barriers to entry are:
1) High fees (advisor + platform + manager fees can add up to 5% for portfolios under $100k),
2) A lack of unbundled offers, i.e., investors have to pay for both advice and platforms when all they want is access to product, and
3) A lack of awareness regarding the benefits of owning managed funds. This is where the industry can do much more by funding investor education campaigns, similar to those being offered in the US.
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What major changes are we likely to see in the managed fund sector in the next two years?
- The development of a national exchange for trading all listed funds (similar to NASDAQ).
- A focus on cost management initiatives, including automation of existing processes and administration.
- Some industry consolidation as a result of continued margin pressure.
- An affordable and scalable advice solution targeting the mass market and underpinned by managed funds; likely to be offered by a trusted brand (does not have to be a financial services brand, i.e., Apple).
- New wealth management models being developed by intermediaries (IOOF, AMP), which may impact on how funds are distributed.
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Mike Ghenta is a Financial Services Executive and former McKinsey consultant with global experience in investment and wealth management. He is passionate about providing affordable and independent investment services to all Australians by leveraging technology and digital channels. Mike developed the first full service online trading platform for managed funds in the US, was head of Strategy and Online Marketing at Citigroup’s wealth management division, and ran the wholesale division of Etrade.