Are banks at risk from the ASX Ltd’s mFunds?

While many investors prefer to manage their own portfolio and invest directly in listed shares, thanks largely to compulsory superannuation, the majority of Australians’ savings are invested via managed funds.

It’s a complicated field and again while some direct investment with fund managers does occur, the majority of superannuation investors are more likely to visit a financial planner and end up investing via a platform, wrap or masterfund. These options are essentially vehicles to simplify the process of investing in managed funds, with the major service providers of these vehicles including Macquarie Group Ltd (ASX: MQG), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), IOOF Holdings Limited (ASX: IFL) and BT Investment Management Ltd (ASX: BTT), which is affiliated with Westpac Banking Corp (ASX: WBC).

With the major banks owning most of the major platforms, the compulsory super system has provided a huge tailwind for growth. This growth looks set to come under pressure due to a soon to be released product by the ASX Ltd (ASX: ASX).

The ASX is due to launch its ‘mFund Settlement Service’ in the coming months. mFunds will offer a fund manager and investor the ability to create and redeem units in a managed fund. It will operate in a similar way to buying or selling shares on market through a broker, however the transaction doesn’t take place between two investors (i.e. a bid and ask) but rather between the managed fund and an investor.

Foolish takeaway

Time will tell how successful mFunds proves to be. It is perhaps unlikely that there will be a major draw-down of funds from platforms onto mFunds, however savers and their financial planners looking to invest in managed funds may be more likely to do so via mFunds rather than traditional platforms in the future. This could significantly slow the growth of platforms and ultimately lead to a decline in funds on platforms. The banks will no doubt be watching developments closely and with at least a mild degree of concern.

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Motley Fool contributor Tim McArthur owns shares in BT Investment Management Ltd and Macquarie Group Ltd.

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