The changes to superannuation, which make staying within the system much more attractive, particularly for older investors, may limit the growth prospects for wrap providers.
The changes announced in the May Budget were warmly greeted by industry participants, although the operators of wraps probably had little to cheer about. Wraps, masterfunds and other sophisticated platforms had been the fastest-growing part of funds management for several years, although rationalisation among their numbers was widely predicted. With the announced closure of the Credit Suisse Asset Management MasterWrap last week, that rationalisation may have started. Credit Suisse’s decision, however, was more to do with the difficulties of being very late to the market rather than a reaction to the Government’s changes to super. Credit Suisse built a very good product and did it relatively cheaply but, in the end, didn’t attract enough interest from planners. Credit Suisse says that the three products – Investment MasterWrap, Super MasterWrap and Pension MasterWrap – had about $130 million in total. Investment MasterWrap will be wound down between the end of October and end of November, with the company holding discussions to find successor funds for the other two. It is unlikely that any other financial institution will attempt to launch a new wrap which competes with the likes of Asgard, BT and Macquarie, which is in stark contrast with the position in the UK. The UK wrap market is booming, with Australian systems builders such as Bravura and InfoComp looking to leverage off their Australian experience. Both have UK operations. Wraps are very greedy users of technology. BT has said in the past, for instance, that its wrap didn’t start to make money for the company until it had passed about $6 billion under administration. Credit Suisse said that it concluded after reviewing MasterWrap that “due to the scale of the current operation and the commitment of resources required in the future to remain competitive (it) will not in future be able to offer investors an efficient and low-cost product that is continually enhanced and developed to meet their changing investment and servicing needs”. Research by Cerulli Associates has shown that Australian financial planners use, on average, 2.7 masterfunds or wraps, which the consulting firm has argued is unsustainable. One of the pities about the closure of MasterWrap is that it is the only Australian product complying with SwimEC standards for managed funds through its STP arrangement with VisiPlan.
Every MySuper fund seems to have worked out how to play the Your Future Your Super annual performance test game. But the current test distorts funds’ behaviour and can lead to poorer outcomes, so it’s time to get on with the task of redesigning the test to make sure it really works in members’ interests.
Simon HoyleAugust 30, 2024
