Big changes coming to managed funds: Calastone Connect Forum______

Sarah Hayward, Managing Director - Head of Australia

As boundaries that once defined sectors and behaviours continue to fade in the face of disruption, now is the time to rethink value propositions, anticipate policy changes and leverage smart technologies that can be applied on a firm and industry scale. This is what we heard from an expert collective gathered recently in Sydney for the Calastone Connect Forum Briefing.  Diving into topics as diverse as trends shaping financial advice, the Australian Taxation Office’s (ATO) data transformation, and non-banking potential of the New Payments Platform, each expert acknowledged the continued shift to put individuals and information at the centre of processes.

Five key highlights gleaned from the Forum reinforce the magnitude of change that is coming and how our industry is adapting.

1. Holistic planners more likely to engage HNW investors

Investment Trends Research Director, Recep III Peker, left no doubt that those who are most likely to succeed in the advice segment will be those who adopt a holistic view of how they support clients across the whole wealth management spectrum.  A recent Investment Trends survey found a considerable number of high net worth (HNW) investors had unmet financial advice needs, with sixty-one per cent reporting to have not received investment advice in the 12 months to September 2016, when the survey was conducted. Recep said a key reason behind this was that they no longer saw the value, reinforcing the need for planners to evolve their proposition by offering broader portfolio advice and management in order to appeal to an increasingly independent client base.

2. ETF flows slow, demand for managed funds and managed accounts surge

Investment Trends research paints a favourable outlook for active investment management. Summary highlights included:

  • Financial planners expect to allocate an average of 88% of new client inflows into investments other than direct shares by 2019, with a preference for professionally managed investments.
  • Between 2008 and 2015, investment in ETFs tripled, but this momentum has stalled, mostly due to the limited availability of actively managed ETFs.
  • Those who haven’t and won’t recommend ETFs increased from 23% in 2015 to 26% in 2016.
  • Those who have and will continue to allocate to ETFs, or have not but plan to, have fallen from 64% in 2015 to 59% in 2016.
  • The percentage of new client flows allocated to managed accounts is expected to increase to 33 per cent by 2019, from 23% at time of survey.

Despite all-time high investor interest in accessing managed funds, perceived barriers such as excessive paperwork remained a deterrent.

3. Robo-advice only part of the automation goal for planners

Robo-advice has barely grown outside of the U.S. and U.K. where larger brands are applying technologies still considered aspirational in Australia, however this is expected to change as more planners join the industry-wide trend of embracing automation to deal with compliance and efficiency challenges. Recep III Peker said robo-advice, defined as automated or algorithmic portfolio construction, could help a planner add more value by freeing up their time to focus on strategic advice and serving a wider proportion of the population.

The most successful of these robo-advisers will be those that don’t just focus on the front end, but those that look to maximise operational efficiency across all aspects of the transaction chain.

4. ATO driving efficiency and transparency with smarter data and tech

Transparency around data has been driven largely by government agendas to give information back to individuals.  There are fewer agencies that have been more challenged by this mandate than the ATO. Overseeing much of this is Tyson Fawcett, ATO Senior Director Data Management, who points to pre-fill tax returns as an example where smart technology coupled with high quality data is resulting in more accurate individual tax records, significantly reducing complaints and query handling. Tyson went on to share his view that intermediaries, sharing permissioned data, can create a fuller picture about individuals, presenting significant potential for future regulatory transparency. In short the value attributed to data will continue to grow.

This was a great example of how such interoperability is delivering tangible business value.

5. New Payments Platform set to empower managed and superannuation funds

Benefits of Australia’s New Payments Platform (NPP) are likely to extend beyond retail banking to the managed funds and superannuation sector, but firms may discover they need to make systems and operational changes first, according to its project engineers.

The NPP was driven by the RBA who recognised the need for there to be a real-time payments solution between banks in Australia. Swift was chosen to build and operate the infrastructure for payment instructions between the banks. The NPP is expected to be live by October, said Franck Depraetere, SWIFT’s NPP program manager. The new system will allow consumers to make payments in real time, outside of normal banking hours, to non-bank account destinations or “alias names”, such as mobile phone numbers and email addresses, with more space available for remittance information (the data attached to a payment increasing from 18 to 280 characters).

Kees Middendorp, Commercial Director at SWIFT, advised that separate to the NPP core infrastructure, any service overlays would be left to the market.  These overlays are not exclusive to retail banks, presenting competitive and efficiency opportunities for the funds industry. For investment managers, this could mean the facilitation of real-time flow of payments for subscription orders, redemptions and transfers. Superannuation funds could benefit from full alignment of data and payment, continued automatic routing of data to relevant stakeholders and real-time processing of superannuation contributions. However, it could also put pressure on industry participants if their systems and processes aren’t ready. For example, receiving payments with richer data and in real time may require a technology upgrade. There is also fraud and liquidity management issues to consider when settlement is so much faster (95% of the transactions will be cleared or rejected within 6 seconds and settled). Operational considerations, such as staffing, may also need to be addressed before firms agree to accept payments 24/7. As Kees said, when you have an increase in speed, there is also an expectation the level of service will increase.

Clearly every market participant is having to rethink their value proposition and business model to cater for changing customer needs and more data-oriented regulation. From our perspective, it has never been a more exciting time to work with clients to help them remain agile while benefitting from industry scale solutions. On behalf of the Calastone team, we’d like to sincerely thank all who participated at our Forum, especially Recep, Tyson, Franck and Kees who together gave us a glimpse of the future.


These author views also reflect expert insights shared by leading industry thinkers who presented at the Calastone Connect Forum. 

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