A flurry of new regulation, pressure to lower costs and the
emergence of a tech-savvy generation of investors, will likely lead to
the convergence of the retail and institutional investment markets in
the medium term.
Speaking at an investment briefing, Magda Wierzycka, chief
executive officer of Sygnia, said they have identified five trends that
could shape the future of financial services firms over the next five
years.
1. Simplification of the retirement savings landscape
Wierzycka said new legislation in the retirement space aims to level the playing field and simplify the landscape.
But what has happened in the retirement industry over the last decade?
Although there has been a movement away from self-administered retirement funds towards umbrella funds, the number of self-administered funds has not shrunk over the period, but has “leveled off”, Wierzycka said.
According to data from the Financial Services Board (FSB), the number of self-administered funds grew from 3 056 in 2000 to 3 128 in 2012.
But the move towards umbrella funds has also in some instances been accompanied by a loss of control for employers, some members have made inappropriate investment choices, management and administration fees have been high in certain cases and a number of these funds have also experienced “messy” administration.
Wierzycka said some employers are demanding more accountability and when they don’t get it from umbrella funds, they approach other service providers to insert an investment administration platform between the umbrella fund and members.
Group retirement annuities are also regarded as a favourable alternative to umbrella funds, particularly for smaller employers.
2. Downward pressure on costs
Costs have been in the spotlight since National Treasury released a paper on fees in the retirement sector last year.
Wierzycka said everyone is waiting for the release of the FSB’s Retail Distribution Review (RDR) discussion paper, which is due to be published soon.
While some discussions of its contents have taken place, contradictory remarks have been made.
Wierzycka said early indications are that RDR will likely take two to three years to implement and that it will require certain commission structures to be capped. The paper is also expected to encourage negotiated remuneration models, and to require full disclosure.
In line with the outcomes of Treating Customers Fairly (TCF) any potential complaints could in future be made against service providers rather than against financial advisors who offer the advice.
But it is not only financial advisory fees that are under the spotlight. There has been an increasing focus on charges in general. This includes management fees in the active management space and administration fees.
3. DIY investment amongst Generation Y
Generation Y (loosely defined as those born between 1980 and 2000) is not interested in advice and don’t want to be told what to do, Wierzycka said.
“They know best but they do it digitally.”
These 20- and 30-year-olds believe they can manage their own investments, but want to do it as quickly, efficiently and cheaply as possible.
Wierzycka said while these consumers are currently not sitting on piles of money, they will be the savers of the future and technology will be a key differentiator between service providers.
But service providers who do offer online solutions must also be prepared to offer support.
Wierzycka said 50% of those who believe they can do it themselves, will at some point be in a spot where they will want advice and service providers need to be in a position to make an appropriate offering.
There have also been noises from new digital players in the industry with Facebook and Google indicating that they are looking at opportunities in the financial services space. Youngsters who are active on social media platforms will be the likely target market.
But as far as South Africa is concerned, software development is difficult. There is a skills shortage and it is expensive, Wierzycka said.
This could make it difficult for service providers to tap this market.
4. Additional savings products for high net worth individuals (HNWIs)
National Treasury’s proposal to cap the tax-deductible contributions to pension funds to R350 000 per annum in future, means that a group of HNWIs will emerge that will want to save more, but who won’t be able to do it in the traditional retirement fund vehicles of the past.
Wierzycka said this proposal would most likely affect senior and executive management in the corporate space.
Some individuals will start looking for alternatives, which will be in the retail space, she said.
Two of the key characteristics of HNWIs are a focus on capital preservation and the negotiation of fees.
These senior managers and executives could also influence the thinking of the board of trustees of pension funds and this could in turn have an impact on the offering to members. This means that if financial services providers can sell an idea to these individuals, there is a high likelihood that it could filter through to the boards of trustees and ultimately to members.
5. (All leading to) convergence of retail and institutional markets
Wierzycka said this trend is happening on three different fronts – in terms of the advice given, fees levied and the product offering.
Fund consultants are looking at ways of offering individual planning advice to members of their funds. The proposed defaults that could be introduced in pension fund savings vehicles in future, will also require advice.
Wierzycka said since the tax treatment of pension fund vehicles will be harmonised in future, there wouldn’t be any difference between a retirement fund and a retirement annuity (RA).
“So suddenly those two product streams are converging.”
There has also been a move towards the convergence of fees.
Wierzycka said commissions are negotiated and index-tracking funds are offered at the same fee in the retail as well as the institutional space. Unit trust fee discounts are increasing and institutional products are also offered in the retail space.
The convergence of products also means that retail products are making an appearance in the retirement fund (institutional) space – for example the emergence of group RAs.
Elite Wealth Creators have been involved in the property and finance industry for over 20 years. Our Investment Property Strategists deliver investment grade properties to the investment market and mediate between the developer and the investor. We also assist first home buyers in purchasing their first home in QLD through our house and land packages – this includes receiving $20,000 cash back towards their mortgage by buying one of our full turn-key packages.
Our service will take you through the complete process of buying positive cash flow property, including:
• educating you on positive cash flow and the ability to pay your mortgage off years in advance
• saving you thousands of dollars in interest
• supporting you in the decision on which property to buy
• assisting in the organizing of your finances, if required
• preparing you for settlement of contracts
• liaising with other professional advisers on your behalf if required.
Our Strategists specialise in delivering quality positive cash flow property and also helping investors pay off their mortgage years in advance
http://www.
sales@elitewealthcreators.com
1800 GO ELITE
Wierzycka said new legislation in the retirement space aims to level the playing field and simplify the landscape.
But what has happened in the retirement industry over the last decade?
Although there has been a movement away from self-administered retirement funds towards umbrella funds, the number of self-administered funds has not shrunk over the period, but has “leveled off”, Wierzycka said.
According to data from the Financial Services Board (FSB), the number of self-administered funds grew from 3 056 in 2000 to 3 128 in 2012.
But the move towards umbrella funds has also in some instances been accompanied by a loss of control for employers, some members have made inappropriate investment choices, management and administration fees have been high in certain cases and a number of these funds have also experienced “messy” administration.
Wierzycka said some employers are demanding more accountability and when they don’t get it from umbrella funds, they approach other service providers to insert an investment administration platform between the umbrella fund and members.
Group retirement annuities are also regarded as a favourable alternative to umbrella funds, particularly for smaller employers.
2. Downward pressure on costs
Costs have been in the spotlight since National Treasury released a paper on fees in the retirement sector last year.
Wierzycka said everyone is waiting for the release of the FSB’s Retail Distribution Review (RDR) discussion paper, which is due to be published soon.
While some discussions of its contents have taken place, contradictory remarks have been made.
Wierzycka said early indications are that RDR will likely take two to three years to implement and that it will require certain commission structures to be capped. The paper is also expected to encourage negotiated remuneration models, and to require full disclosure.
In line with the outcomes of Treating Customers Fairly (TCF) any potential complaints could in future be made against service providers rather than against financial advisors who offer the advice.
But it is not only financial advisory fees that are under the spotlight. There has been an increasing focus on charges in general. This includes management fees in the active management space and administration fees.
3. DIY investment amongst Generation Y
Generation Y (loosely defined as those born between 1980 and 2000) is not interested in advice and don’t want to be told what to do, Wierzycka said.
“They know best but they do it digitally.”
These 20- and 30-year-olds believe they can manage their own investments, but want to do it as quickly, efficiently and cheaply as possible.
Wierzycka said while these consumers are currently not sitting on piles of money, they will be the savers of the future and technology will be a key differentiator between service providers.
But service providers who do offer online solutions must also be prepared to offer support.
Wierzycka said 50% of those who believe they can do it themselves, will at some point be in a spot where they will want advice and service providers need to be in a position to make an appropriate offering.
There have also been noises from new digital players in the industry with Facebook and Google indicating that they are looking at opportunities in the financial services space. Youngsters who are active on social media platforms will be the likely target market.
But as far as South Africa is concerned, software development is difficult. There is a skills shortage and it is expensive, Wierzycka said.
This could make it difficult for service providers to tap this market.
4. Additional savings products for high net worth individuals (HNWIs)
National Treasury’s proposal to cap the tax-deductible contributions to pension funds to R350 000 per annum in future, means that a group of HNWIs will emerge that will want to save more, but who won’t be able to do it in the traditional retirement fund vehicles of the past.
Wierzycka said this proposal would most likely affect senior and executive management in the corporate space.
Some individuals will start looking for alternatives, which will be in the retail space, she said.
Two of the key characteristics of HNWIs are a focus on capital preservation and the negotiation of fees.
These senior managers and executives could also influence the thinking of the board of trustees of pension funds and this could in turn have an impact on the offering to members. This means that if financial services providers can sell an idea to these individuals, there is a high likelihood that it could filter through to the boards of trustees and ultimately to members.
5. (All leading to) convergence of retail and institutional markets
Wierzycka said this trend is happening on three different fronts – in terms of the advice given, fees levied and the product offering.
Fund consultants are looking at ways of offering individual planning advice to members of their funds. The proposed defaults that could be introduced in pension fund savings vehicles in future, will also require advice.
Wierzycka said since the tax treatment of pension fund vehicles will be harmonised in future, there wouldn’t be any difference between a retirement fund and a retirement annuity (RA).
“So suddenly those two product streams are converging.”
There has also been a move towards the convergence of fees.
Wierzycka said commissions are negotiated and index-tracking funds are offered at the same fee in the retail as well as the institutional space. Unit trust fee discounts are increasing and institutional products are also offered in the retail space.
The convergence of products also means that retail products are making an appearance in the retirement fund (institutional) space – for example the emergence of group RAs.
Elite Wealth Creators have been involved in the property and finance industry for over 20 years. Our Investment Property Strategists deliver investment grade properties to the investment market and mediate between the developer and the investor. We also assist first home buyers in purchasing their first home in QLD through our house and land packages – this includes receiving $20,000 cash back towards their mortgage by buying one of our full turn-key packages.
Our service will take you through the complete process of buying positive cash flow property, including:
• educating you on positive cash flow and the ability to pay your mortgage off years in advance
• saving you thousands of dollars in interest
• supporting you in the decision on which property to buy
• assisting in the organizing of your finances, if required
• preparing you for settlement of contracts
• liaising with other professional advisers on your behalf if required.
Our Strategists specialise in delivering quality positive cash flow property and also helping investors pay off their mortgage years in advance
http://www.
sales@elitewealthcreators.com
1800 GO ELITE
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