This article from Today's Oz may explain why IOOF ain't 'flavour of the month' Bob ... I believe it to be over-pessimistic and intend to top up if/when we go sub $8.
Super forecasts
The wealth management industry is set for a rough ride over the coming decade as fund inflows wane, with superannuation managers staring down a generational shift where baby boomers begin to draw down on savings while government reforms discourage voluntary contributions.
Supported by compulsory contributions from employers, Australia’s funds management industry has seen enormous growth over the past 20 years, reaching more than $2 trillion in funds under management last year. But this growth looks set to slow dramatically.
Over the past 10 years, assets under management grew at a compound 9 per cent a year, falling from 13 per cent over the decade to 2005. As the system matures and retirees start drawing down on their savings, Credit Suisse said system growth would slow further to 6 per cent.
In the investment bank’s annual review of the sector, analyst Andrew Adams said the contribution of funds inflow into the system had fallen from an average of 6 per cent of managed funds between 1996 and 2010 to a rate of just 2 per cent in 2015.
“Looking forward, we have net flows steadily declining over the next two decades, with net flows shifting to outflow in 2032,” Mr Adams said.
Flows into the system had been supported by strong voluntary contributions into super, particularly between 2006 and 2007, but Mr Adams said as the government tightened super rules, voluntary contributions could be discouraged, limiting flows.
The Turnbull government on budget night reduced the limit on voluntary contributions to $25,000 a year with a lifetime cap of $500,000, which analysts have criticised as deterring super contributions.
Moreover, as net flows become less relevant to growth, Mr Adams said market movements would be the bigger driver of growth for the wealth management industry.
The March quarter was relatively weak for managers with funds shrinking 2.2 per cent, as slight 0.2 per cent inflows failed to offset a 2.4 per cent fall in the market. Over the year to the end of March, market movements accounted for negative growth of 4.5 per cent, partially offset by 2.4 per cent worth of positive inflow.
Volatility in financial markets has already created challenges for the funds management sector. AMP this month reported a 2 per cent drop in assets under management to $112.6 billion for the first quarter due to negative investment markets and higher wealth protection losses. Perpetual’s funds also slipped during the quarter, while IOOF’s fell $1.7bn to $131bn.
CLSA analyst Jan van der Schalk said the industry would soon be at an inflection point where pension drawdown outflows outweighed inflows. Demographic changes suggest the retiring population will grow at an average rate of 2.5 per cent for the next 10 years.
“With baby boomers retiring and the subsequent cohorts being smaller, there is plenty of heavy lifting required to ensure inflows exceed outflows,” Mr van der Schalk said. “In the current environment of inflated asset valuations, this is a rough road to ride and one with plenty of risks.”
Mr Adams said flows would probably contribute just 1-2 per cent to funds under management growth over the coming decade.
But on the positive side, Mr Adams said as a growing number of people shifted into the retirement phase with hefty super balances, more complex tax, super and pension rules would be a tailwind for companies with financial advice and investment platforms.
Credit Suisse said the nation’s largest provider of annuities, Challenger, was best placed to take advantage of the generational shift from the accumulation phase to the retirement phase.
Mr Adams said robo-advisers were unlikely to replace human advisers in the “mass affluent” or “high net worth” market, but they could assist efficiency of the system and make “low-cost advice” accessible to those who previously could not afford it
IFL Price at posting:
$8.13 Sentiment: Buy Disclosure: Held
(20min delay)
