Easy, low-cost access comes to managed funds

The flood of free financial information now easily accessible on the Internet has spawned a growing group of DIY investors taking a hands-on approach to controlling their financial destiny.

Increasingly, this online investment activity involves managed funds, especially since last April's market correction which hurt so many ordinary investors trading tech stocks via online brokers.

Since then, online share trading volumes have fallen from the peaks of 100,000 trades per day to an average of 60,000 trades in January and many of those now more risk-aware investors are seeking solace either offline in the arms of their full service broker/financial planner or staying online but spreading the risk by diversifying in managed funds.

Just as online brokers have made buying shares more accessible and attractive with lower brokerage fees, there is now a growing number of companies allowing discounted entry into managed funds. An entry fee of up to 4% will be charged when investing in managed funds via a financial planner, but discount brokers such as Neville Ward, InvestorWeb, Comsec, Etrade, TD Waterhouse and Your Prosperity will cut that fee to zero by way of rebates. Just like the online share brokers, these managed fund brokers provide entry into managed funds on a non-advisory basis, while providing the investor with the tools, information and research to make their own decision. These features include:

1. An education centre that explains the market and various asset classes. This area may incorporate tools to help you define your risk profile, asset allocation and managed funds available in these areas.

2. Search tools that allow you to rank funds according to recent performance, management expense ratios, fund size and rating (Morningstar and Assirt).

3. Fund research. This includes the statistical profile of the fund, fund rating, objectives, asset allocation etc. Morningstar and Assirt both provide independent analysis of managed funds and give them a rating based upon both quantitative and qualitative criteria.

4. Portfolio management services that allow you to monitor your managed fund portfolio and obtain valuations.

Below is a list of the current discount managed fund brokers :

Neville Ward Direct were the first to offer rebates on entry fees into managed funds on a non-advisory basis. They offer information and prospectuses on over 5,000 managed funds from 180 fund managers. Their internet website includes tools to help establish your risk profile and asset allocation and they also have a Seletor's List which highlights top performing funds. Their service has recently been expanded to include share trading, home loans and fixed interest products.

Comsec introduced a managed fund service to compliment its online broking service. They offer comparisons, search tools, fund profiles on over 200 managed funds and you can request that a prospectus be sent to you. Comsec also offers entry into superannuation funds, share trading, money market trading and margin loans.

Etrade launched a managed fund service in the second half of last year allowing you to invest in over 270 mostly wholesale funds. As an Etrade client you can buy / sell managed funds online and view all prospectuses. They also have a monthly focus on a different sector funds. Etrade also offers share trading facilities and margin loans.

TD Waterhouse also rebates up to 100% of the entry fees into over 200 managed funds. By subscribing to the Information Centre (free) you can access Analyst's Choice Funds being a summary of top performing funds, Portfolio Planner to establish your asset allocation and download prospectuses. Via TD Waterhouse you can also access share trading facilities and cash management accounts.

Direct Access is a discount managed fund service backed by F2 and distributed through Tradingroom.com.au and MoneyManager.com.au. There is a managed fund watchlist in addition to a portfolio management tool. You can also link through to a list of financial planners via F2's City Search service. There's plenty of investment news and market information accessible via Trading Room which will only expand through its arrangement with Macquarie Bank.

InvestorWeb gives you access to 250 managed funds with rebates on entry fees. They offer a comprehensive range of selections tools, managed fund research and fund charting. The InvestorWeb service offers a broad range of news and research on shares, new floats, property, mortgages etc.

Your Prosperity offers rebates on entry fees to over 250 retail funds via their Fund Trading service and 190 wholesale funds via their Portfolio Service. They have online investment tutorials, detailed selection tools and a comprehensive online portfolio service. You can also trade shares via Your Prosperity and access super funds.

New players like Westpac Broking and other wealth management portals such as WealthPoint are expected to join the list this year.

So how do you choose a discount funds broker? Here's a checklist to help assess the offerings:

  • Do discounts apply to both the prospectuses you download from the internet and those you have mailed to you. There may be an initial charge for mailed out prospectuses.
  • What educational material does the broker offer? Does it include tools to identify your risk profile and appropriate asset allocations?
  • Does the broker offer a wide variety of funds? You're better off getting an idea of the types of funds you're interested in before deciding on a broker.
  • What portfolio management tools are offered to keep track of your holdings?
  • What are the broker's upfront requirements? While some may require a free registration only, others may require that you open an account.

Advisers: What do I get for my (up to) 4%?

If you have reasonably uncomplicated financial affairs, then using a discount managed fund broker can be beneficial. If you have a lot of money to invest and require tax and/or estate planning then paying for a financial planner makes sense. You will get advice within the context of your portfolio and financial situation.

For those happy to pay for someone to manage their financial affairs, nothing has changed. For others, it is more evident exactly what you're paying for. Full service brokers provided trade execution, access to floats, company research and advice. The internet has segmented this service so that to a large degree trade execution, floats and company research/market information are freely available. Advice in the context of an investor's portfolio becomes the major focus of the full service broker.

So it will be with financial planners. Where investors are comfortable controlling portions of their portfolio, eg. managed funds or direct share investment they will be increasingly reluctant to pay advisory fees for these services. The challenge for financial planners will be how to keep hold of such clients, how to structure their business and fee structure so that clients are able to control and manage portions of their portfolio while advisers look to add value elsewhere, eg. tax/estate planning.