Trends in the Unit Trust Industry

12 Sep 2014 
SOURCE: Wong Sui Jau

​On 1 September 2014, Fundsupermart made two landmark changes in its pricing structure. First, all bond funds are sold at zero percent sales charge. Second, for Accredited Investors who have at least $200,000 invested with Fundsupermart, all sales charges and switching fees for all funds will be at zero.

This trend of lowering charges has started since online distributors, such as Fundsupermart, launched 14 years ago in 2000. Back then, banks were selling unit trusts at a sales charge of 5%, while online distributors like Fundsupermart and Finatiq came onto the market and started distributing the exact same unit trusts at 2.5%. Since then, sales charges have continued to drop. Now, most of the banks levy sales charges of 3% (though some are still charging as high as 5%), while Fundsupermart has slashed sales charges off 145 fixed income funds to 0%, with the rest sold at just 0.5%. For a large segment of investors, all unit trusts sales charges are now 0%.

The second trend is that the unit trust industry has been growing steadily since the new millennium, both in terms of the overall investor take-up rate as well as the online unit trust marketplace. For an investor, there are now many more channels available to buy unit trusts. There are the online distributors, including Fundsupermart, the traditional banks, and the financial advisors, all of whom now sell unit trusts as well. This has been aided by the explosion in the number of funds sold by distributors like Fundsupermart. Singapore's status as a financial hub and its stability over the decades, especially during both the Asian and Global Financial Crisis, has drawn many fund managers here.

There are now literally hundreds of funds available and investors are spoilt for choice. The multitude of different areas that these funds are investing into is also a huge difference from the nineties, when most of the funds were either Singapore equity funds or global technology funds. Today, within bond funds, there are funds ranging from short term duration bond funds to high yield bonds funds. Within equity funds, there are funds ranging from US equity, Europe equity funds to single country Thailand or Indonesia equity funds.

This has been aided by technology. Today, not only are there many tools online available publicly to all investors to compare and track fund performances, there are mobile applications as well. An investor can use the Fundsupermart mobile app to monitor his fund's performance on his smart phone or on his iPad. Fund prices are updated as quickly as one day later. These are updated directly online and investors can see these latest fund prices any time they want along with the calculated fund performances. The information age has placed a massive amount of information at investors' fingertips. Never has it been easier to track, monitor and invest online.

Another trend that has happened though, has been the rise in regulation. The Global Financial Crisis hit the entire world and even till now, its repercussions are still being felt across the world. Many regulators have introduced new laws and regulations overseeing the financial industry, and Singapore has not been an exception. There are now a lot more safeguards for investors. This does not change the fact that investors still have to understand what they are buying, and that there are always risks that come with investing. However, there is certainly now more safeguards. The Customer Knowledge Assessment, which all investors are required to go through, separates the newbies from the investment savvy, and holistic investment advice must be provided to these newbie investors.

Currently, there is also a consultation paper put out by MAS which is looking to implement common risk ratings and complexity ratings to a broad range of investment products (not just unit trusts, but also insurance products and structured deposits).

Internet security is another trend. With the high profile hacking of various websites, internet security is of even greater concern now. All the banks have implemented two factor authentication (2FA). Fundsupermart has also adopted this security measure, and have introduced two factor authentication to our investors this year. These are just amongst the more notable, visible measures which directly affect investors with regards to buying unit trusts. So, while there may be more steps which need to be performed in the name of increased internet security and compliance, these are necessary in order to maintain the faith and confidence of the masses and indeed the world in our financial institutions.

Twenty years ago, investors looked mostly at just property and stocks for investing. Today, there are a lot more financial instruments available. The industry has grown by leaps and bounds, and although there has been greater regulation in the aftermath of the Global Financial Crisis, it is still much better to an investor today compared to twenty years ago. As these and other trends unfold in the industry, I can say with confidence that investors will be amongst one of the biggest beneficiaries.

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