Australia’s personal investments market

Australia’s personal investments market – with total assets of $2,242 billion at June 30, 2015 against $2,032 billion in superannuation at the time – is set to keep growing strongly at 4% a year in real terms over the next 15 years.

Rice Warner’s recently-published Personal Investments Market Projections 2015 report points to opportunities for wealth industry participants to capitalise on this sustained growth. These opportunities include the expected growing popularity among personal investors of increasingly-sophisticated, more cost-efficient wrap platforms and a continuing surge in demand for Exchange Traded Funds (ETFs).

The vast majority of (non-superannuation) personal investments are currently held directly by individuals with just 3.2% held through investment products and platforms. This reflects substantial holdings in directly-held cash and term deposits (41% of personal investments), directly-held investment property (42%) and directly-held equities (11%).

However, Rice Warner expects a significant movement from directly-held investments to investments held on platforms. As a result, the value of personal investments held on platforms is projected to rise from $71 billion in June 2015 to $315 billion over 15 years in today’s dollars – up by more than four times.

Wrap platforms, including separately-managed accounts and model portfolio products, will be the fast-growing personal investment segment with its market share growing from 3.2% to 7.8% by June 2030.

Rice Warner’s Personal Investments Market Projections 2015 report closely examines changing consumer preferences and market developments to make our projections. Key findings include:

• ETFs: This market will continue to grow strongly given their ease of trading, low cost, use to diversify into markets inaccessible to individual investors, liquidity and transparency. (In our report, we classify ETFs as equities, not managed funds.)
• Directly-held investments on wrap platforms: As discussed, we expect a large shift from holding investments directly – such as cash, term deposits, property and equities (including ETFs) to holding such assets on lower-cost, more-efficient wrap platforms.
• Low interest era: Low interest rates will continue to encourage personal investors to reduce their holdings in cash in favour of higher-yield investments.
• Fee transparency: This is exposing providers to greater fee pressure across all components of the personal investment value chain. However, fee reductions to date have been small.
• Technological developments: These are changing the distribution of products, the provision of advice and the design of products themselves. Direct distribution using online advice and planning tools is increasing. Technological development and platform evolution are improving accessibility and lowering costs, and also leading to the development of tax optimisation services.
• Demographic changes: The retirement of ageing baby boomers will lead to greater drawdowns of non-superannuation and superannuation assets first to provide retirement income and later for the generational transfers of wealth upon death.

Australia’s dual investment and savings systems, inside and outside superannuation, are of almost equal size. Both promise to provide excellent and evolving opportunities for the financial services industry.

Given the widespread attention given to superannuation by Government, interest groups and the media, the size and significance of the non-superannuation personal investments market is not always readily recognised.

Personal investments by platform over the 15 years to 30 June 2030 – in 2015 dollars

* Excluding wrap platform business held by SMSFs.

^# Including managed investments held on master trust platforms or directly.