Colonial First State (CFS) has moved to tackle industry super funds head on with a significant enhancement of its FirstChoice investment platform. CFS has slashed the minimum investment level for FirstChoice from $100,000 to $1,500 and claims to have a fee structure as low as, or lower, than many industry funds.
The chief executive of CFS, Brian Bissaker, says that “for the first time, we’ve got a major platform, indeed, the largest platform in the industry, offering a fee level for the mass market which actually is as low or lower than many industry funds, and the lowest retail product fee in the industry”.
Since the move to abolish commissions from retail superannuation products, competition between industry super funds and retail funds has shifted to product features, administrative efficiency and price. Colonial’s move to open up FirstChoice to low account balances – the natural constituency of industry funds – means the focus of competition will now be on service and features. On these counts, retail funds generally compare favourably.
Marianne Perkovic, general manager of distribution for CFS, says the response from financial planners to the move has been positive “as we’ve been able to neutralise the fee debate, and have given them a great reasonable basis to talk to their clients and switch clients, but importantly to compare retail funds and industry funds”.
“A lot of businesses will be able to forge ahead and really reposition their business for the future,” Perkovic says.
Linda Elkins, general manager of marketing for CFS, says the difference in fees and features between industry funds and retail funds is generally likely to narrow in future.
“If you look in the way industry funds pricing, you’ll notice that it’s drifting up as they start to add some more features and benefits that they think are necessary for them going forward,” Elkins says.
“So you’ve got a retail sector that’s always invested heavily in platform performers and you’ve got an industry fund sector who’s now starting to make that investment.”
Bissaker says CFS’s move to overhaul FirstChoice has not only thrown down the gauntlet to industry funds, but also gives the manager a chance to consolidate its position among retail funds.
“FirstChoice’s platform market share back in September [2010] was 11.01 per cent,” Bissaker says.
“That’s grown strongly and we’d like to aim for a 12 per cent platform share pretty soon. We think this is a significant opportunity for us to gap the opposition, but the market will decide that.”
The changes to offer the lowest fees, pay no commissions and raise the bar on value will open up greater choice for financial advisers as the price gap no longer stands as an advantage for industry funds.
Even though CFS has lowered the minimum investment level for FirstChoice, Bissaker says that “at the same time, we didn’t introduce a low balance fee”.
A simplified fee structure involves charging a percentage per investment option, which start at 40 basis points and includes the investment management, administration and any custody fees.
He says FirstChoice is significantly cheaper than the average retail fund for superannuation account balances between $25,000 and $950,000.
“This is going to be our ‘go to’ product for all clients,” Bissaker says.
He says the move to enhance the platform was CFS’s response to the super fund choice environment and the Future of Financial Advice (FoFA) reforms.
“We’re looking at where the marketplace is going, we’re looking at the Government changes and indeed the industry changes, where the FSC has put a standard in place to have no commissions on new businesses from July 2012, [which] will likely become legislated,” Bissaker says.
FirstChoice Wholesale currently has funds under administration of $49 billion, with 119 investment options on the menu and an average fee of 89 basis points.
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