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Two research houses have released bullish reports on the Australian wealth management industry, with investor sentiment at its highest level in two years.


According to CoreData, the steep rise by Australian equities since November 2012 is behind this increased confidence with investors finally regaining an appetite for risk.

The rebound in sentiment was captured by CoreData’s latest quarterly Investor Sentiment Index, which registered a positive reading for the first time since Q2 2011.

The positive outlook was supported by Rice Warner Actuaries, which this week released a Personal Investments Market Projections Report predicting significant growth for the wealth management industry.

It found that the personal investments market, including personal investments held in banks, shares and investment properties was $2.124 trillion at June 30 2012, up 9.3 per cent over the previous year. This compares with $1.4 trillion in superannuation assets.

Personal versus super

Due to the rising superannuation guarantee, Rice Warner expects the personal investments market to grow at a rate of 4.8 per cent and the superannuation market at 5.5 per cent per annum over the next 15 years.

“The personal investments market is growing strongly, with savings rates above 8 per cent in the past two years. When personal bank accounts, term deposits and investment properties are taken into account, it is larger than the superannuation market, but personal savings funds under management with wealth managers, at $112 billion, are still dwarfed by superannuation,” said Richard Weatherhead, a principal of Rice Warner.

“While superannuation will grow quickly in the future due to its significant compulsory component, 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.”

To date the wealth management industry has only tapped around 5 per cent of the personal investments market. However, Weatherhead believes that reduced platform fees and lower cost investment products will provide access to a broader range of investments and that the industry is set for significant growth.

The Rice Warner research found that the amount of personal investments held directly by individuals, rather than via investment products and platforms provided by the major wealth managers, is 94.7 per cent. This reflects substantial holdings in cash and term deposits (33.9 per cent), investment property (45.6 per cent) and shares (11.2 per cent), with the balance being fixed interest and other securities (4 per cent).

An expanding platform of personal investment

The Rice Warner report predicts wrap platforms, including separately managed accounts and model portfolio products, will be the fastest growing segment, with market share growing from 1.6 per cent to 6.6 per cent over the 15 years to June 30, 2027.

Rice Warner believes directly held assets within wrap platforms will grow to become 74 per cent of assets, compared to 57 per cent 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 exchange-traded funds.

Just one more quarter

However, for the moment, investors are hedging their bets with close to half of respondents (47.7 per cent) in the CoreData survey believing that equities will outperform the property market over the coming quarter, but 57 per cent reporting they are happy or very happy with their property investments.

According to Salvador Saiz, head of advice, wealth and super at CoreData, Australians may feel more positive about the market outlook over the next three months, but they’re still not willing to put their hands in pockets and allocate substantially to equities.

“In other words, investors remain cautious and may need yet another quarter or so of positive momentum in equity markets before they make such a move,” he said

“We do believe, however, that the reasons for maintaining large allocations to cash have changed – where previously this was due to investors simply being risk averse, they are now parked, waiting for the right opportunity to stick their heads out.”

Andrew Starke
19th March 2013
Source:  Professional Planner