Australia’s personal investment market, with total assets of $2,848 billion as at 30 June 2020, is set to grow strongly at 4.4% p.a. in real terms over the next 15 years. Table 1 shows a breakdown of the current and future Personal Investments market by platform.

Table 1.              Personal investments by platform over the 15 years to 30 June 2035, in 2020 dollars

^{^} The amount of directly held equities excludes holdings in private non-financial corporations.
^# Including managed investments held on master trust platforms or directly.

Rice Warner’s recently published Personal Investments Market Projections 2020 report points to opportunities for industry participants to capitalise on this sustained growth. These opportunities include:

• Innovation in the Cash and Term Deposits market – given the high proportion of assets currently held in this space within relatively limited product sets.
• Strong continuing demand for Investment Property vehicles.
• More cost-efficient wrap platforms.

There is also sustained inequality in the Personal Investments market, both across age and wealth groups. The amount of assets in the youngest age band (those under 25) constitute only 0.5% of the total market, with an even more stark picture for those in the poorest 25% who only hold 0.2% of the total assets in the market. While intergenerational wealth transfer will somewhat even the field on an age basis, we expect the level of inequality in the wealth bands to persist. This, however, also provides opportunities for market players to innovate and provide low cost options to people in this cohort that will encourage participation and drive further growth in the Personal Investments market.

Forces shaping the market

The personal investments market continues to change, driven by a variety of socio-economic factors, regulation, and personal preference. In this year’s report, we predict that the following forces will have the biggest impact on the Personal Investments market:

Superannuation legislation

The Personal Investments market is intrinsically linked to the superannuation market as individuals consider their overall financial position and future financial needs, including both superannuation and non-superannuation investments as a holistic position. Recent legislative changes have reduced the flow of savings to superannuation products, especially from wealthier investors.

Product development

The Personal Investments market continues to evolve through the development of new products and services, as financial institutions look to meet changing consumer objectives and demands. In particular, we expect the following products to have a large impact on the market:

• ETFs: We anticipate continuing strong growth in this market due to the convenience, liquidity and cost effectiveness for investors.
• Enhanced index funds: Investors are increasingly fee conscious and sceptical of pure actively managed funds. Enhanced index funds have a potentially advantageous hybrid model which aims to provide active management style returns with low(er) fees. This has proved popular in the past, with enhanced index funds now constituting 10.5% of the ETF market. We note that this concept may be difficult to understand for direct retail investors, and that without an intermediary, growth prospects in this area may be reduced.
• Environmental, social & governance: Research has found that up to 92% of Australians expect their investments to be invested responsibility and ethically, with expectations for adopting ESG frameworks higher amongst younger investors. We expect the demand for ESG driven products to increase over time as the demographics shift, and the returns for these products become more attractive.

Governance and technology

• Governance: The level of regulation across the personal investments market has increased substantially in the last decade with landmark changes like the Future of Financial Advice (FoFA) legislation, and the upcoming Design and Distribution Obligations (DDO) regime. As these changes come into effect, we expect continued scrutiny of the provision of financial advice and the remuneration models used within the sector, as well as governance pressure on the financial services industry, particularly in respect of product design. More generally, there is a heightened sense of community expectation in relation to the governance standards that investors expect their investment managers and providers to live up to.
• Technology: Consumers and investors are now accustomed to sophisticated and convenient service delivery via web and mobile applications; and they are increasingly demanding these levels of service for their investments. The drive for efficiency and competitive advantage coupled with the continued expansion of internet and mobile functionality has seen ongoing innovation both in products and services, leading to a demand for more accessible, transparent and low-cost products. We anticipate that market participants with a focus on these products can expect to see a larger market share, with newer, younger participants favouring these products.

Conclusion

The Personal Investments market remains an under recognised market compared to Superannuation, however it is one with many opportunities for market providers. To remain competitive and gain market share, providers will need to maintain a strong focus on costs as well as innovating to ensure they can deliver valued outcomes to customers.