I have always, always loved the funds management industry and in particular, mutual funds.  Their history fascinates me.   Here’s one for you.   The first ever mutual funds were introduced in the Netherlands in the late 1700’s after a financial crisis and enabled investors to pool their monies while diversifying their investments.  The US took them on board in a big way in the 1890’s but their gloss was tarnished by the Great Depression.  But they live on and were one heavily commission-based where millionaires and big names were made.  It was only a few decades ago that the commission for the sale of a mutual fund was 8%.  Imagine trying that today post Royal Commission.

Like most industries, advancing technology impacted the funds management industry with the introduction of Exchange Traded Funds.  In short, ETF’s are mutual funds that mirror an index and have the benefit of being traded on a stock exchange – diversity and liquidity combined with technology into a low-cost option.

There are some HUGE players in the market including Vanguard, Fidelity, State Street and Blackrock to name a few.  The monies invested are in the US$ trillions and since the uptick in the market, the Baby Boomers and Gen X have been piling in like nobody’s business, driving the US market ever higher.  One in all in.  The same here in Australia but we Australians still like to invest directly, although the favourite Telstra and bank trades recently have gone a bit on the nose.

Anyway, I woke up yesterday morning and saw this headline:

Free Fidelity Funds Stoke Price War in Bid to Catch Index Giants

“Fidelity Investments, having lost billions of dollars in assets to rivals, pulled out some new ammunition to use against them — dropping fees to zero.

The move is part of an ongoing reckoning at Fidelity. The company, which built an empire on the prowess of its stock pickers, has been moving aggressively to fit into a world increasingly dominated by low-cost index products and exchange-traded funds. But it’s playing catch-up to Vanguard Group and BlackRock Inc.

So Fidelity unveiled two new index funds Wednesday to individual investors with a zero expense ratio, a move that roiled fellow asset managers. Fidelity may use the funds, as well as the other index products it reduced prices on, to attract investors to more profitable businesses such as financial advice and higher-priced active vehicles.”

Using free ETF’s as a loss leader to get on the Fidelity database where more fee-based services can be sold is very out there and we shall see if it works.  Technology can be a killer and we have not even moved to blockchain yet!

And our SMSF industry is not immune and has strongly participated in the growth of the Australian ETF market.  On the SMSF administration side, advancing technology including bank feeds, automation of strategies with Lightyear Docs, index funds with very low fees and audits only every three years, see the price of SMSF administration and maintenance drop every year.  And you have to laugh at the Super Productivity Commission saying SMSF’s need a $1M to make them feasible.  They obviously haven’t heard of Family SMSF’s or the increasingly low-cost technology coming to SMSF administration.

I remember when my good SMSF mate Simon Makeham, director of the SMSF Members Association, pointed out to ASIC to when they were determining the minimum set up for a SMSF, asking what should it be if the administration is free – the member does it themselves or uses a service like www.mclowd.com.au where their basic administration software package for Trustees and Professionals is free.  Of course, nothing beats a professional using Class, BGL or Supermate and with their feeds and services getting better each year, value for money is skyrocketing.

But there’s one thing that can’t be replaced with technology yet and that is strategy.  Although I have seen some tax-based AI programs that pore through hundreds of thousands of pages of laws, regulations, rulings and court cases to come up with a response to a strategic question.  However, at this stage, with SMSF’s and their more strategically challenging elder brothers, the Family SMSF’s, the human mind coupled with creativity can still deliver a great value-based strategy.  One that can make a huge difference to a family in terms of multi-generational wealth creation while providing a great revenue driver for the advising firm involved.  A real win-win.

So, in summary, anything that can be automated will be and that means change to the way we work, not only in SMSF’s but the entire financial services industry.  The real keys to the kingdom lie in the knowledge and strategy-based businesses that are continually increasing their SMSF knowledge, venturing into new strategy areas such as Family SMSF’s and who never stop educating their clients on what is possible.

P.S.  I Love SMSF takes its technology seriously and uses the best in the world systems to deliver substantial, well, huge value-add, for a low price.  CPD which is undergoing a major transformation and soon to be pegged to hours not points, is an area we are disrupting.  The highest quality possible – post graduate standard for as low as $20 per hour in a specialist, growing area such as high-end SMSF strategies and their higher earning cousin, the Family SMSF.  For a firm looking to become a strategy-based firm, CPD – knowledge and strategies are the keys to the kingdom.  Our next outbreak is the automation of strategy documentation, making the complex simple and standing right alongside the strategy knowledge of the I Love SMSF trained adviser to deliver real-time powerful SMSF and Family SMSF strategies to clients and prospects.  Perhaps free SMSF administration to build a strategic business, just like Fidelity is doing, may be tried as a SMSF advice model in the future.