A comprehensive analysis of the future of Australia’s non-superannuation investment sector reveals strong future growth enabled by technology and rising consumer demand for choice in the underlying investments.
Wealth industry participants also look set to capitalise on this growth, with important new opportunities to find and grow new pathways into the market.
This is a key finding of the Rice Warner Personal Investments Market Projections Report released today.
The report is based on the Australian personal investment market as at 30 June 2013. It investigates consumer preferences and market developments in order to make projections of the market dynamics over the next 15 years.
“The personal investments market is larger than the superannuation asset pool, when personal bank accounts, term deposits and investment properties are taken into account. The market is also growing strongly with savings rates above 8% in the past two years,” said Principal and Head of Superannuation and Investment Consulting, Steve Freeborn.
Superannuation will grow quicker in the future due to its significant compulsory component. However, the personal investment market will become increasingly important as Australians seek flexibility of access to their savings and concessional contribution caps, and other tax changes dampen the attractiveness of investing in superannuation.
Historically, the ease and simplicity of straightforward bank and term deposits, and the lure of capital gains and negative gearing through investment property have led to these segments dominating the personal investments market, leaving wealth management products with only a modest market share.
To date the wealth management industry has only tapped around 6% of the personal investments market.
However, we expect this to change as the industry is set for significant growth driven by ongoing technology improvements. In particular, the continued enhancement of new age wraps platforms and online trading capabilities, together with the availability of a broader range of lower cost investment products including Exchange Traded Products and the mFund settlement service.”
Key points
– The personal investments market, including personal investments held in banks, shares and investment properties was $2,275 billion at 30 June 2013, up 7.1% over the previous year. This compares with $1,616 billion in superannuation assets (excluding unfunded public sector liabilities and the value of government pensions).
– The market includes investments held both directly by individuals and via investment products such as platforms, investment master trusts and life savings products.
– The personal investments market is expected to grow at a rate of 4.8% per annum in real terms (8.0% per annum in future dollars) over the next 15 years.
– The superannuation market will achieve a faster growth rate over the next 15 years (5.0% per annum in real terms) due to the significant compulsory component within that market (i.e. the superannuation guarantee contributions).
– The amount of personal investments held directly by individuals, rather than via investment products and platforms is 94.2%. This reflects substantial holdings in cash and term deposits (33.8%), investment property (46.7%) and shares (11.1%), with the balance being other forms of credits and financial assets (3.7%).
– Wrap platforms, as a result of accommodating the diverse needs of investors, including managed accounts, model portfolio and exchange traded products, will be the fastest growing segment over the 15 years to 30 June 2027, with market share growing from 2.0% to 7.5%.
– Within wrap platforms, directly held assets will grow to become 75% of assets, compared to 66% currently. This reflects the increasing consumer preference for managing investments directly, the increased availability and reduced cost of managed discretionary accounts provided through financial advisers and the growth of ETFs.
“The personal investments market is larger than the superannuation market, when personal bank accounts, term deposits and investment properties are taken into account. The market is also growing strongly with savings rates above 8% in the past two years.
Superannuation will grow quicker in the future due to its significant compulsory component. However, the personal investment market will become increasingly important as Australians seek flexibility of access to their savings and concessional contribution caps, and other tax changes dampen the attractiveness of investing in superannuation.
Historically, the ease and simplicity of straightforward bank and term deposits, and the lure of capital gains and negative gearing through investment property have led to these segments dominating the personal investments market, leaving wealth management products with only a modest market share. To date the wealth management industry has only tapped around 6% of the personal investments market.
However, we expect this to change as the industry is set for significant growth driven by ongoing technology improvements. In particular, the continued enhancement of new age wraps platforms and online trading capabilities, together with the availability of a broader range of lower cost investment products including Exchange Traded Products and the mFund settlement service.”
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