Monthly Archives: March 2014

Entering the Australian Retail Wealth Management Market is rewarding but only for the committed – 27 March 2014

Establishing a presence in Australia for any offshore manager can look like a tantalising prospect.   We can imagine the pitch from the executive in charge of a manager’s growth strategy to their Board.  It consists of one slide:-

$1.6trn today.  $7.5trn 20 years from now.  Any questions?

But for completeness, and so as not to entirely waste the precious Harvard MBA, the strategist provides one more slide listing some other important facts about the Australian market: –

  1. Stable and strong economy
  2. Generally stable political and regulatory environment
  3. Gateway to Asian markets
  4. Highly educated workforce
  5. Technologically savvy
  6. Multicultural workforce with multilingual skills
  7. The 4th largest pension market in the world that will more than triple in size in the coming two decades
  8. Sophisticated buying behaviour
  9. A strong home bias that is looking for more offshore options across the asset classes
  10. Good coffee, nice beaches and lots of sunshine…

A no brainer right? Well…. Yes, but the barriers to entry are significant.

So for any manager looking to enter the Australian retail market, we have provided a high level overview of some of the critical requirements they must meet before meaningful funds can flows.  And for success, execution is critical.

But first a definition…

For the purposes of this blog, retail is defined as the channel where funds are distributed via financial advisers.  That is, a B2B market place where the decision making buying behaviour is becoming more institutional.

The funds launch project – what’s involved?

Step 1 – Market analysis and testing

We recommend that managers invest a relatively small amount of both time and money to conduct some market analysis to assess whether the capability would succeed if launched. Specifically, this would include competitor analysis, segment analysis and growth rate projections, product structure requirements, demand dynamics, and the value chain and how this might impact on the strategy etc.  We are ultimately attempting to find exploitable gaps in the market where the level of competition is relatively low and where the segment is growing faster than system.   Once completed, the next step is to spend time meeting and presenting the capability to garner feedback from key market participants; from advisers to researchers and gatekeeprs, from platform providers to dealer groups etc.  This qualitative market analysis will provide valuable insights into whether the segments identified in the quantitative analysis will use the product in the market.

After conducting the analysis and market testing, a manager should have enough insight to make an informed decision about whether to enter or not.  This does not mean the manager has to enter, but at least they will have enough information and the option value to decide when and how they will enter at some time in the future, if at all.

In our experience, this type of analysis is not often done – instead, managers just visit Australia a few times, attend a few conferences and speak with a few players and then based on a “informed gut feel” launch their product and then work out how to sell it = expensive and wasted dollars.   A lot of tears can be avoided by undertaking the work in Step 1.

Step 2 – Product development

If in Step 1, the manager has high conviction around the likely demand for their capability, a product then needs to be developed.  That capability must be accessible in a way that the market desires (and this will depend on the sales channel); typically a unit trust (either a retail version or a wholesale Info Mem), which can easily feed into a manager’s offshore vehicle – preferably with an AUD class.  In the future, and this will not work for all products, the ability to offer the capability as a Separately Managed Account (SMA) could be a winning strategy for gathering assets.

To develop the product, the manager will need to appoint various service providers for legal, custody, responsible entity services, accountants etc but there are plenty of organisations in Australian that can assist managers provide all of these services in one place – for example, Select Fund Services.

When we meet with managers, they tend to over worry about the product creation and ongoing compliance regime but this is the easiest (but also highly important) component to solve – the really hard part is raising funds.

Step 3 – Market access requirements

In essence, the market access requirement involves having the product available for financial advisers to recommend the capability to their clients in way that integrates with both their desktop and dealers compliance regime.

This stage cannot begin until Step 2 has been completed, although we do recommend engaging with market stakeholders well before the product creation stage, as discussed in Step 1 above.

Listed below are the three key activities (at a high level) needed to achieve the key market access requirements for distributing via financial advisers.

Obtain a research rating from a recognised house

There are a number of research providers that serve financial advisers.  The choice of where to get a rating includes Lonsec, van Eyk, Morningstar, Zenith, Mercer and some emerging groups like Atchison and Australia Ratings.- importantly, some have screening processes, so in effect, they are choosing to rate you and not vice versa.  Each research house has a different approach in terms of how they conduct their analysis, and how much they charge differs.  Few, if any, research providers will rate a non-existent product (you need to have a registered Australian fund with a local APIR Code).

Without a rating, the ability to raise funds from the retail market will be severely hampered unless the channel is ‘institutional like’ e.g. family offices and boutique advisory firms who do their own research, or who are assisted by smaller consultants who will do that research with them.

Ideally, the timing of the rating should coincide with the researcher asset class timetable, and knowing this may shape when you enter the market – some research houses can do out of cycle reviews, however, but it is better for their resource management to be reviewed alongside the peer group at the right time.

Importantly, the process of being rated starts between 6 to 12 months before they conduct the rating, which is why we recommend engaging with the market early.

Once you have a rating (and a minimum Investment Grade is required), the next objective is to have the product positioned in the research house model portfolios, but that will also require a platform listing, which we describe below.

Seek a platform listing

Once a rating has been obtained it is important (and this may vary depending on the sales channel) to seek a menu listing on one of the leading wrap account platforms including BT Wrap, Asgard, Macquarie Wrap, CFS First Wrap, MLC Wrap, AMP North, Netwealth and some of the emerging SMA providers like Hub24, Mason Stevens, OneVue and to name a few, and if the fund meets certain characteristics, managers will be able to list it on the ASX through the mFund market to get access to the direct consumer (but this is an untried market channel).

Each platform has a series of governance requirements that are greater than just a research rating, which includes getting bottom up and quantifiable support from advisers, amongst a range of other important criteria.

There are also costs (e.g. shelf space fees) involved in getting listed on these platforms that varies between each provider.

Dealer group Approved Product List (APL) process

Each dealer group develops tightly controlled Approved Product Lists (APLs), whilst some are quite open; that is, they are research rating driven e.g. “if you have an Investment Grade or above from research house X, you can engage with our planners.”

In addition to the above research rating requirement, many dealers will conduct their own manager research.  They will use the external rating to augment their own processes, whilst other groups will rely 100% on an external rating to put their APL together.  Knowing this will help shape the sales strategy.

Each dealer group may also have rules of engagement processes, in terms of how to deal with their advisers, professional development requirements and other FOFA compliant sponsorship arrangements.

Step 4 – Representation services

Once a manager has received a product rating, obtained a listing on a platform and has approval from the dealer to engage with the advisers, it is now time to meet and then serve the financial advisers, remembering the 80/20 rule in terms of dealing with the top 20% of planners who generate 80% of the business.

At a high level, there are two key aspects to the representation services that managers need to be aware of, and have some strategy around, as set out below.

Adviser servicing requirements

Advisers need to be educated and trained on the capability, and given that Australia is such a large landmass, focus is the key.  Even when a fund is recommended in a dealer group or researcher model portfolio, advisers still need to ‘Know the Product’.  This education delivery can be achieved via appointments, teleconferences, webinars, conferences, boardroom lunches etc – a multi pronged strategy is recommended.

To support this level of servicing, the manager needs to ensure that the basic marketing collateral is in place such a websites, facts sheets, performance reports, social media, email newsletter capability etc.

From a systems point of view, tracking this level of engagement is paramount in order to understand whether the sales strategy is working, and to get real time market feedback, and so, a manager will need to think about their CRM and reporting requirements here too.

Influencer requirements

To support the activities mentioned above, we recommend that a content delivery strategy be established that leverages the thought leadership a manager might have in order to build brand cut through.

A manager that is prepared to share their content in an open way, will be welcomed by the various conference organisers, such as the Advisers Big Day Out, PortfolioConstruction Forum and the FPA Professionals Congress and the various adviser related trade press such as, Financial Standard, AdviserVoice, Professional Planner and Money Management.

Many of these media platforms require both time and dollar commitments, and the list above is far from exhaustive.

Other entry options

There are other avenues to the retail market too but each will have an impact on strategy execution and net margin earned, including, developing an exclusive distribution agreement with a major bank or going direct to the consumer but more on that in future blogs.   A manager could also just learn their way by starting in the institutional market, and as FUM and brand awareness grows, enter the retail market at that stage – always plenty of options!

Managers could also focus their resources in the early years around one sales channel (e.g. IFAs), getting listed on one platform and achieving just one rating – this will bring the market entry costs down significantly but can result in a slower burn.

Final comments – remember the size of the prize!

May I remind you – $1.6t to $7.5t over the next 20 years!

Managers need to think in long timeframes if wanting to truly succeed in the Australian market.  At the time of writing, we have met with five offshore managers in the past week alone who wanted to learn about the Australian market – this is a great sign for Australian consumers and we want to help them!

In summary the key requirements are as follows:

  1. A minimum five year commitment to the market,
  2. The ability to deal with the fact that no flows may result in the first three years,
  3. Between $400k-$1m in annual expenses to achieve the requirements set out above (the difference in expenses will be shaped by the number of products being launched, the insource versus outsource of the sales team decision and the number of sales channels served),
  4. At least four visits by senior portfolio managers in each of the first three years, and
  5. The easy part – deliver great performance along the way!


For those managers that can meet these requirements, the rewards can be substantial and well worth the investment. Half committing to the market will result in a poor to mediocre results based on our experience – there are no short cuts!

Want to learn more?

If you are an offshore fund manager and would like to learn more about the Australian market and how Winston can help you manage the above requirements, please call me on +61 401 716 043 or email me at

Andrew Fairweather, Managing Director and Founding Partner

What can Aesop teach the various Financial Planning Associations here in Australia? 7 March 2014

“A Lion used to prowl about a field in which Four Oxen used to dwell.  Many a time he tried to attack them; but whenever he came near they turned their tails to one another, so that whichever way he approached them he was met by the horns of one of them.  At last, however, they fell a-quarrelling among themselves, and each went off to pasture alone in a separate corner of the field.  Then the Lion attacked them one by one and soon made an end of all four.”

In this case, the four (but five) ‘Oxen’ are the multiple Associations that represent financial planners, against the Industry Super Australia ‘Lion’.

What do I mean?

Let’s say that a consumer, who knows nothing about financial planning, decides to embark on a journey to learn more.  They are keen to get a financial plan and want to work with someone they can trust – they have no bias or fixed agenda in terms of who owns who, or an understanding on what basis a planner gets paid and the implications thereof – of course, these are important elements for that consumer to know, as an informed decision is an empowered one.

So they go to that little Google box and type in Financial Planner. During their investigation, they come across the various Associations that represent planners, listed below as ‘The Oxen’.

The Oxen

  • The Independent Financial Advisers Association Australia (IFAAA) exists to promote the ‘gold standard’ of independence for financial advisers.  Members of the IFAAA are genuinely independent financial advisers who stand out from the rest of the financial planning community.
  • The Boutique Financial Planning Principals’ Group (BFP) represents the interests and high ideals of non-aligned Australian Financial Service Licensees who provide personal, tailored and ongoing advice that is in the client’s best interest. Our goal is to ensure consumers have a genuine alternative to institutional business models.
  • The Association of Financial Advisers (AFA)’s… aim is to provide members with a robust united voice, continually improve practices and focus firmly on the exciting, dynamic future of the financial advising industry. We passionately believe in the value of financial advice to transform people’s lives.
  • The Association of Independently Owned Financial Planners (AOIFP) practices must not have any ownership from a financial institution and operate their own Australian Financial Services License. These two elements allow the AIOFP member adviser to make their own decisions on a client’s portfolio direction… without the conflicting influence of institutional ownership.
  • The Financial Planning Association is the largest professional body representing financial planners across Australia. Our practitioner members are bound by a Code of Professional Practice enforcing higher standards than those required by law and making sure your interests are represented in the most effective way possible. Make sure your financial future is in the safest possible hands – always look for a member of the FPA.

Source: Association websites

Confused (remember, you are in the shoes of a new consumer)?  Me too. Oxen lose.

When reading these summarised statements (and they are all worthy and well put together), how does our consumer choose the Association he wants his/her adviser to be a member of (and helpfully, many planners are members of more than one), because they all offer strong consumer benefits in their own right.  e.g the FPA highlights higher standards than the industry requirement, the BFG talks about tailored advice and non-aligned choice, the AOIFP talks about why being non-aligned is advantageous to consumers, the IFAAA goes beyond the legal requirement and the AFA provides an inspirational set of beliefs etc.  But this is not the purpose of this article – the Lion is the focus!

(The use of the word independent (“independently”) as defined by the Corps Act need to be carefully used by the members of some of these Associations too and this is not to suggest that anyone is flouting the law – they are not.  However, I have seen many website home pages in my investigation where advisers who are ‘aligned’ use the words ‘independently owned business’ to describe their practice – a legally correct statement but potentially confusing to the consumer in light of these Association positioning statements set out above.)

In contrast, the Industry Superannuation Australia (Lion) presents an unambiguous statement based on client outcomes.

The Lion 

  • Industry Super Australia (ISA) is an umbrella organisation… with the objective of maximising the retirement savings of over five million Industry SuperFund members – in addition to the low fees and no planner commissions messaging that has been consistent since they formed.


Confused (same consumer)? Nope.  Lion wins.

Ordinary Australians need advisers help

There is a battle for the hearts and minds of Australian retail investors who have taken a battering to their confidence during and after the GFC.  Many unfairly blamed their financial advisers, fund managers, the media etc but rarely themselves.  Trust was broken, even when advisers provided great advice before, during, and after that volatile event – we all learned and it was stressful for everyone.

From the various Associations point of view, instead of discussing how working together to fight for both consumer outcomes and quality of advice might be in the entire planning industry’s interests post the GFC, they kept their existing positions (or entrenched them further), in an attempt to own the morale high ground – e.g. the FPA is better because we own the CFP© designate, independently owned is better because we are not owned by an institution, we are genuinely independent because x, y, z etc.  The AFA and FPA did attempt to merge in 2010, but ultimately, it did not go ahead.

But in my view, the morale high ground is currently owned by Industry Super Australia (in the mass market, because the IFAAA might successfully argue that they hold the morale high ground alone), which is clouding the great work that the majority of retail advisers do, no matter how or where their license is held.  Whilst each of the ‘Oxen’ Associations all have lofty ideals, I do not believe going it alone is assisting to create an industry that speaks with one unified and powerful voice – a voice for consumer advocacy and wealth outcomes, delivered via highly trained financial advisers.

I am Lion, hear me roar – a new way forward?

I believe that financial advisers have more in common with each other than they care to admit, regardless of where or how their license is held.  By focusing on the common elements, we could take the best from each Association to present a united voice to retail clients and to Canberra when lobbying our politicians.

Forgetting the name for now but here is my stab at a mission statement of the yet to be named united Association that represents all financial advisers and their consumers.

The <Yet To Be Named United Association> Mission Statement 

“We recognise that Australians need advice in order to live the lives they both want and deserve.  Some prefer to seek that advice from large financial institutions, finding comfort in having a large brand stand behind that advice, whilst others prefer to deal with smaller firms where the advisers are also the licensees.  It is important when dealing with one of our members that you understand how they charge you and on what basis, who provides their license and the implications for you and how you can complain if things don’t work out as you expect  – you can get this information from your advisers Financial Services Guide (FSG).”

“Whatever your preference or unique circumstances, our members are highly trained, are governed by the same laws and regulations that deal with your ‘best interests’ and are “bound by a Code of Professional Practice enforcing higher standards than those required by law.” (thank you FPA!)

I never claimed to be a marketing guru (and maybe this is wishful thinking) but hopefully you get where I am coming from.  Essentially, Aesop’s fable teaches us the old adage of ‘United we stand and divided we fall.’

As such, isn’t it time we talked seriously about uniting the ‘Oxen’ Association to deal with the big Lion, by either staying as we are, but with greater collaboration, or merging to create a new Lion of greater strength?

Andrew Fairweather, Founding Partner and Managing Director