Brokers the new competitors for advisers

Stock brokers are likely to provide stiff competition for financial advisers when declines in brokerage fees force them to change their business focus, a fund manager says.

Tuesday, October 30th 2012, 6:47AM

by Niko Kloeten

A number of broking firms have already set up financial advisory and fund management arms and according to Pathfinder Asset Management executive director John Berry this trend is likely to accelerate.

Speaking at the Society of independent Financial Advisers (SIFA) conference in Auckland, Berry said the traditional broking firms still dominate the New Zealand market, with the top five firms accounting for 90% of transactions on the NZX.

Berry said they also charge high fees for transactions compared to the rest of the world, but these costs are likely to come down.

“Execution-only broking firms have only 3.5% of the market share on the NZX this year. However, the risk is that a trading platform will come from offshore and put pressure on [brokerage],” he said.

“Our fund pays three basis points on US equities, whereas most New Zealanders buying international equities will pay over 1% if they use a New Zealand broker. We’re not talking 10 basis points; this would be a massive change.”

Berry said if this did happen and revenue from broking was reduced, brokers would “become wealth managers”, which in some cases they are already doing.

“A lot are effectively providing financial advisory services which will be a challenge to other financial advisers.”

Berry also predicted increased transparency in the fund management industry will “dramatically” change the relationship between advisers and product providers.

“Transparency is a transfer of intellectual property from fund managers to advisers and investors by opening up how the investment process works and the underlying holdings and underlying exposures are,” he said.

“Previously there was almost a cult-like relationship where they would hand money to a fund manager and they knew it was complex but they would trust them to manage the money.

“Now if something is too complex for an adviser to understand they don’t invest their clients’ money in it.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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