Join our daily newsletter At The Bell to receive exclusive market insights
- ASIC publishes a study on competition in Australia’s funds management industry, finding that retail investors are mostly missing from the sector
- According to Deloitte’s analysis, retail investors account for only five per cent of funds under management
- According to the research, retail and wholesale investors are concerned about fund performance
- Australian Bureau of Statistics data shows the sector had $4,309.8 billion in funds under administration in the June quarter of 2021
Australia’s corporate watchdog released today a report on the condition of competition in Australia’s funds management industry, revealing that retail investors are mostly absent from the market.
The Australian Securities and Investments Commission (ASIC) commissioned Deloitte to conduct independent research on fund manager competition, with an emphasis on results provided to retail managed investment product investors.
According to Deloitte’s analysis, retail investors account for only five per cent of funds under management, yet the managed funds sector affects a considerably greater proportion of Australians through superannuation.
The managed funds sector is competitive, as demonstrated by new market entries, innovation, and low fees by global standards, according to the research, but there is no single source of truth that allows for direct comparisons between funds.
According to the research, retail and wholesale investors are concerned about fund performance. Investors’ decisions to purchase, sell, or switch managed funds are influenced by economic transaction costs.
However, these transaction fees are not always visible, which may lead to investors continuing in underperforming funds, according to the report.
The report said fees and discounts are competitively offered by fund managers. However, due to principal-agent problems and transparency concerns, individual investors may not get the full benefits of competition.
Retail investors are not very interested in fund management while many intermediaries exist between fund managers and ordinary investors, which can lead to conflicts of interest, the report noted.
Some players in the managed funds sector have conflicts of interest, which may have an impact on retail investors’ outcomes, according to the report.
Australian Bureau of Statistics data shows the total managed funds sector increased by $208.3 billion (5.1 per cent) to $4,309.8 billion in funds under administration in the June quarter of 2021.
During the June quarter, total unconsolidated assets of superannuation funds increased by $177.8 billion (5.6 per cent) to $3,353.4 billion.
ASIC said it will consider these results as part of its ongoing efforts to promote effective competition in the funds management industry and enhance investor outcomes.
The Deloitte report has been sent to the Australian Treasury and the Australian Competition and Consumer Commission.
