This article appeared in the December 2014 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
By Andrew Bird, Sharesight
There is a famous Al Pacino quote in the last instalment of the Godfather trilogy: "Just when I thought I was out, they pulled me back in." Investors who have tried to extricate their portfolio from vertically integrated financial solutions may have found that it is difficult to take control of their investments. Fortunately, times are changing.
The ability to gain control is a function of having "unbundled choices". That is, the ability to pick and choose which products and services you wish to use as an investor, rather than being forced into an all-or-nothing financial "solution", which has been the dominant model offered by most Australian financial institutions for many years.
The choices for self-directed investors have been increasing in recent years, but it has taken a long time for the full range of choices to present themselves.
The advent of cheap online broking in the late 1990s was a watershed moment for investors. For the first time, they could make their own decisions and then trade at far cheaper prices than traditional full-service brokers offered.
Online broking came without research, however, so that was the next challenge. Fortunately the internet started to offer more cheap or free information. Firms such as Aspect Huntley, for example, offered independent research that came unbundled from broking.
SMSF growth drives change
The growing popularity of self-managed super funds (SMSFs) was arguably the most significant of these unbundling steps. Investors could set up and manage their own retirement fund and had broad discretion to invest in an asset mix of their own choosing. More than half a million SMSFs have now been created and they are a significant force in Australia's retirement savings landscape.
More recently, exchange-traded funds (ETFs) have provided another type of unbundling. ETFs allow investors to buy entire markets or sectors with the purchase of a single stock listed on ASX. These low-cost "passive" investment vehicles allow investors to gain great diversification without the need to pay for a wrap and associated financial planning.
mFunds are the latest form of choice and unbundling. Investors can access a broader array of active funds that can be bought and sold through their broker. For investors seeking access to some of the world's best fund managers, or to conviction-oriented, active management, mFunds offers a cost-effective solution. Like ETFs, they can be unbundled from wrap admin and from advice if desired.
Managing the bundle
All this unbundling has been a great boon to investors. They have more choice, they can control their costs more easily and they can create a portfolio and investment plan that precisely fits their requirements. The downside to this unbundling and choice, however, is that it can be hard to keep track of everything when it lives in different places. Some information lives with the share registries, some with your broker or adviser, and the rest in shoeboxes under the bed.
If you do get organised, typically it is on behalf of your accountant for tax purposes. The information you might have managed to pull together becomes out of date immediately. Investors repeat this process annually, always looking back in time and not ahead.
What is more, the effort to organise a portfolio rarely focuses on things that actually matter, such as performance or planning for capital gains tax. Chances are you do not know how your portfolio has gone this month, this year, or over your lifetime as an investor. That is crucial information if you are going to take control successfully.
Tech to the rescue
That is the idea behind technology companies such as Sharesight, a cloud-based portfolio tracking and reporting system. It offers a one-click way to organize investors' trading history and dividends so they can understand exactly where they stand in terms of performance, income, and tax. Its technology captures the trades made by automatically reading your contract notes, no matter which broker or platform they come from.
Sharesight is also building an ecosystem of connected applications. It connects to brokers, investment managers, research providers and accounting applications, such as Xero. By offering a "portfolio passport," it is betting that investors will benefit from connected, purpose-built applications.
People take for granted how much technology has helped them to get organised in other parts of life. Whether it's staying in touch with family or friends by social media, or booking a plane trip online, there is more choice and convenience than ever before.
Now it is coming to your portfolio. If you can log in to Google or Apple's iCloud to access email, photos and media, you can log in to one place to see your overall wealth picture.
About the author
Andrew Bird is executive director of Sharesight, a cloud-based online portfolio manager for investors and financial professionals. Before joining Sharesight he was CEO of Morningstar Australia and NZ. He joined Morningstar in 2006 after it acquired Aspect Huntley, an online equities research and information business he co-founded in 1997.
mFunds are unlisted managed funds you can invest in through ASX's mFund Settlement Service.
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