“That’s what the financial planners that we’re dealing with are telling us. Demand is coming from clients.” Selvarajah says the financial planning industry has tried over the years
to make inroads into the self-managed superannuation funds market, a group of investors that – although they often defy generalisation – are keen on a high level of control and do have a propensity to invest directly in equities.
“People who have a self-managed fund are, by definition, more self-directed,” Selvarajah says.
“Though they do get advice, they tend to look for more direct investments. So definitely the demand is coming from the clients, and financial planners are having to find ways to respond.”
Selvarajah says planners have not advised more on direct equities before now“because they have always been concerned about how” to do it.
“But I think the smarter ones already do a number of things,” he says.
“In the first instance, they have some sort of relationship with a broker. And they have some research from that broker that will help them in terms of providing advice to their clients.
“I should say that generally they will stick to the ASX 100 stocks anyway, so it’s fairly safe ground. They stick to blue chips, because their client base is getting older and looking for dividends as well as capital growth.
“But there’s also a few new business models around, like OneVue and Eclipse. Those two groups are providing SMA [separately managed account] services.”
The SMAs provide simple, transparent model portfolios that planners can fit to their clients. A key selling point for planners is that the company or sMA grate constructs the model portfolio also monitors it, and rebalances it when appropriate.
And then the rebalancing is applied to all investors who hold that portfolio. “The SMA rebalances the portfolio automatically for the client – and that’s a big trend I am seeing in the market at the moment,” Selvarajah says.
SMAs have“been around for a long time”, he says, but have enjoyed some- thing of a renaissance in “the last 18 months”.
“There has been a big shift in popularity,” he says.
A drop in the cost of SMAs certainly hasn’t hurt the shift, and nor has a marked improvement in the administration systems that underpin the newer offerings. They are, to all intents and purposes, wraps for direct investments.
“So what we have focused on is integrating with these providers,” Selvarajah says.
“We’ve integrated with them so that trades come to us automatically – when a portfolio is rebalanced, the trades come direct to us. There is nil, or minimal, manual interaction, and when the trades are executed the information goes directly back to them.
“These guys have created a wrap plat- form for equities. The thing these guys also provide is [a facility] to invest into managed funds – so they have their IDPS [investor-directed portfolio service] as well – but what they are seeing is people are still trading from managed funds
to equities. So if you have a client with a holding in a managed fund, they can retain that holding and any new money can go into direct equities.”
Steel says providers to financial planners need to offer a suite of services.
“There’s the obvious tools of a website that will let you view your client’s current position and trade, as well,” Steel says.
“That’s very analogous to a direct trading experience. Advisers need to be able to see what their clients have, and look at market research, and make some informed decisions and execute trades on behalf of clients. So that’s the first, bare bones. “Beyond that, what we call models
and research are very important. An adviser usually wants some guidance or some comfort level. They’ve got a responsibility to make sure they’re making informed decisions…so having a model or some research they can rely on increases their confidence and helps with the explanation to clients as to why they’re making certain recommendations.
“Building on that is something we call ‘wholesale advice’, and that’s a service where a planner can, if they have a client that already has direct equities and the planner may not feel that comfortable making equities recommendations, they can send through the client’s portfolio to us and we can apply certain expertise and models, and send that back to the planner, and they can put their brand and covering letter on it, almost, and give that to the end client and say,‘Me and my fantastic support team have assessed your situation and we think you’re out of balance – overweight on utilities, or min- ing – and this recommendation helps get you back in balance and gives you a more structured asset allocation’.”
Steel says a planner needs to make sure they’ve completed an appropriate needs analysis, along with identifying “any propensity or desires the client has” to include or exclude any specific stocks or sectors. Some clients may want to avoid investing in gambling stocks, for example. The planner also needs to have a good grasp of the client’s risk tolerance, Steel says.
“Another important thing is visibility into planning software,” he says.
“A lot of planners are comfortable getting on a website and looking at a client’s position and trading, but often they want that fed as well, through data feeds, back into their planning software, so they can see what the updated portfolio is. Usually, equities is only part of the overall portfolio.
