- Thursday, 14 March 2013 | Chris Kennedy
FIIG Securities' chief executive, Mark Paton, spoke to InvestorWeekly's Chris Kennedy about the increasing demand for fixed income from SMSF investors and how FIIG liaises with planning groups.
What is the main focus of FIIG?
FIIG Securities has been going for 14 years and has built a business that provides direct access to corporate bonds and term deposits.
Our clientele, across all fixed income securities, comprises high net worth investors, middle market corporate and also, increasingly, self-managed super fund (SMSF) trustees. As capital is coming out of managed funds, people's employer fund or their industry fund and they're nearing retirement or they've got to a stage of life where they want to directly control their investment, they're taking the funds out of there and putting it into an SMSF and they're wanting to directly invest.
They're [directly investing] in equities, they're hooked up to internet-based equities service providers and they also want to invest in fixed income securities.
FIIG can do that online through our sub-custodial arrangements so SMSFs are a good part of our business. We have about 6,500 clients today and we have a pretty rapid growth trajectory over the next two or three years. We think that on the current trajectory we'll hit 50,000 clients over the next two or three years.
What are total funds under management at the moment?
Today, we would turn over about a billion dollars per month in bond investments. Sub-custodian, we'd have about $1.7 billion in corporate bond investments and in cash about $8 billion of invested funds in term deposits and cash.
How do SMSF trustees find out about FIIG?
We promote ourselves in two ways: we promote ourselves directly to those investors who want to directly control their funds, we market ourselves through print media and the internet - traditional forms of marketing. We also have a strong belief in investor education and professional advice around investing generally, so we're a big promoter of financial planner networks and accountants and properly-accredited advisers who talk to investors about portfolio allocation.
The problem in the Australian investor market is that typically there's less access to a diverse range of products, particularly in fixed income securities, and as a consequence the planner community has got a narrower range and hasn't been able to provide a fully balanced portfolio of allocations.
We believe opening up fixed income security markets to a broader range of investors is something professional financial advisers would want to see.
The baby boomer generation is the first big generation that's going to retire with the benefit of compulsory superannuation. They've got a decent portfolio, they have to self fund their retirement to a large extent, whereas the previous generation retired with a pension.
So the planner network, the intermediary groups, are a very important part of client education, balanced portfolio allocation, so we have a very strong relationship with a lot of financial planners and we have accreditation mechanisms on our website so financial planners can come in. They get professional development points by participating in our accreditation and training programs. We have a big investment into supporting them in their dialogue and supporting them in their education and understanding of fixed income securities.
How does the planner accreditation work?
Part of our marketing agenda is to create a relationship with the different planner groups and platforms. We do those with a number of the very large planner networks - we've signed up one recently that has 370 planners and they would represent 320,000 clients. Those clients, for the first time in that organisation, will get access to invest directly in corporate bonds.
Corporate bonds come with a minimum investment parcel of $500,000 typically. FIIG has been able to create a direct on-service where $50,000 is the minimum parcel size and we're currently working on reducing that to $20,000. We're trying to make investment in bonds more accessible to investors generally who want to have a balanced portfolio of assets. There is much more capital security in investing in a bond versus equities because you rank higher up the capital structure of the company, and you also get a more certain yield.
Particularly as interest rate cycles are low, people are looking for higher income to live off from their superannuation savings. Fixed income securities are a fantastic product [for reducing] your capital risk and increase your yield compared to equities.
How do the planning group relationships work?
FIIG is licensed through ASIC to be able to provide custodial services to our clients. So when you invest in a bond, the bond has to be owned on a custody platform, FIIG outsources that to a major global custodian.
The clients are managed by a client adviser from the planner group so [the planning group] manages all of the AML (anti-money laundering), they host the customer, they give the advice, and FIIG provides the product flow into that planner network. They then on-sell that product into their client base.
The client holds their bond investments on our custodial platform which is outsourced to a global custody provider and we report that information [to the planner] so the planner can see their bond investments alongside their equities and cash. The client can also get direct access to it online. They can see their bond portfolio, they can see the corporate report and corporate actions, coupons flowing on - all the changes that happen in their portfolio when they move from one investment to another. The client gets direct access and visibility but the planner also can see it and provide advice to the client.
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