Listed investment flows set to rise: report


By Krystine Lumanta

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Financial planner allocations to listed investments are set to increase, however, compliance risks stand as a key barrier to further adoption, according to Investment Trends research.

The “Planner Direct Equities Report 2014”, published late last month, revealed planners were channelling record flows into listed investments, with 27 per cent of new client money going into listed investments, which included direct shares, exchange-traded funds (ETF), listed investment companies and separately managed accounts.

The figure was up from 25 per cent in 2013, Investment Trends senior analyst Recep Peker said.

“Planners really ramped up the amount of money they put into listed investments back in 2010 when there was a lot of pressure on fees and planners were looking for lower-cost alternatives to managed funds, as well as to differentiate their value proposition,” Peker told financialobserver.

“But since then, because of volatility and investor confidence falling, they were putting a lot more money into cash and term deposits.

“With investor confidence coming back in 2013, planners were able to increase the amount of money into listed investments as they’ve been meaning to for years, and in 2014 that continued.”

The report also found that when planners were asked what level of new client money they expected to use for listed investments by 2017, the average financial planner said 33 per cent of new client flows.

“The main [factor] that’s driving the demand for listed investments, direct shares especially, is that they seem to be a cost-effective way of gaining exposure to dividends and capital growth,” Peker said.

“From the client end, we found that investors were really pushing for more income and franking credits, but also a lot more people were seeing growth opportunities out there, so because direct shares are cost-effective to gaining those dividends and capital growth, planners want to start to use them or use them more for their clients.”

He said while the trend for using listed investments was climbing, the report found there were some barriers to use.

“Compliance risk is the largest hurdle to direct shares adoption at the moment both for planners who currently give direct share advice and planners who want to start recommending direct shares,” he said.

“When it comes to picking individual stocks, planners are worried about the risks there, so what we found was that there’s greater demand for research and training for picking stocks and using stocks in client portfolios.”

It was also dependent on the planner’s dealer group, he said.

“Dealer groups are more supportive of planners using direct investments, for example, when looking at ETFs in general there are fewer planners now that say they need their dealer group to encourage [them to use ETFs],” he said.

“With individual direct shares there are also fewer planners that believe their dealer group is holding them back.”

The report surveyed 500 planners in March.

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