ASIC has today released a report on the state of competition in Australia’s funds management industry.
ASIC commissioned independent research by Deloitte Access Economics (Deloitte) to examine competition between fund managers with a focus on outcomes delivered to investors in retail managed investment products. Report 702 Competition in funds management contains Deloitte’s findings.
Deloitte’s research found that:
- retail investors are a small fraction of funds under management, at five per cent, but the managed funds industry affects a much larger number of Australians through superannuation;
- the managed funds industry is competitive, as evidenced by new market entrants, innovation and low fees by global standards;
- there is no single source of truth that allows for direct comparison between funds;
- retail and wholesale investors are sensitive to the performance of funds. Economic transaction costs affect investors’ decisions to buy, sell and change managed funds. These transaction costs are not however, always transparent and may lead to investors remaining in underperforming funds;
- retail investors are not highly engaged with funds management. There are many intermediaries between fund managers and retail investors, and this can create conflicts of interest;
- there is competition between fund managers on fees and discounts. However, retail investors may not receive the full benefits of competition due to principal-agent issues and issues around transparency;
- some participants in the managed funds industry have conflicts of interest, and this could affect outcomes for retail investors.
ASIC will take these findings into account in its ongoing work to support effective competition in the funds management industry and to improve investor outcomes.
The Deloitte report has been provided to Treasury and the Australian Competition and Consumer Commission (ACCC).
Background
Under the Australian Securities and Investments Commission Act 2001, ASIC is required to consider the effects that the performance of its functions and the exercise of its powers will have on competition in the financial system.
ASIC engaged Deloitte in December 2019 to assess the:
- extent and effectiveness of competition in the funds management industry;
- factors that drive competition in the industry to produce positive consumer outcomes;
- impact that increased competition may have at an investor, industry and wider economic level; and
- factors that may inform ASIC’s exercise of its regulatory function to promote competition in the funds management industry.
The work was deferred for a period due to the significant impact of the COVID-19 pandemic on the funds management industry last year.
In March 2021, Deloitte produced an interim report on the effectiveness of competition and invited industry stakeholders to make submissions on the findings. A number of submissions were received and considered before the release of the final report.