Aberdeen flags automation as passporting issue
There is much to resolve before the Asia Region Fund Passport (ARFP) becomes a reality, not least an arrangement over tax harmonisation, says Gil Orski, Australia chief operating officer at Aberdeen Asset Management.
But another significant issue is that of funds automation, he notes: if Australia is to benefit fully from a passporting scheme, other signatory countries must have a similar level of funds automation.
Australia is very well prepared on this front, says Orski, though there has been progress on automation in Singapore and Korea in recent years (the fourth signatory to ARFP being New Zealand).
“Fund automation might not directly help with expediting the progress of achieving a passporting scheme in Australia," he adds, "but the work being done in the industry to promote automation has put Australia in better position to embrace passporting.”
While there are two other passporting proposals in the works – the Asean and Hong Kong-China mutual recognition schemes – Orski says it would be ideal to end up with a single system. “If you believe in accessing each other’s markets and promoting freer flow of information, ideally we would end up with one consistent regime.”
In Australia, order-routing automation has in the past two years made notable progress, notes Orski. For Aberdeen’s Australia arm alone, he says he would not be surprised to see automation levels of fund subscription and redemption rise to 80% from the current 50%.
“We have reached 50% of automation from a very low base in two years since joining Calastone’s transaction network,” he adds. “In Australia, banks and their platforms are key distributors of funds and flow from them is a significant source of order traffic into our pooled investment vehicles.”
The Australian market has evolved from a backward status to reaching a “tipping point” at the wholesale level, says Orski, referring to communications between fund managers, distributors and custodians.
Other fund managers with Australian businesses, such as Fidelity and Schroders, have also moved to automate their orders to and from distributors.
The next step for Australia is to automate the process by which investors apply for and redeem fund units, says Orski. One initiative he cites is the mFund settlement service forthcoming from the ASX, which allows retail investors to buy and sell mutual fund units through online brokers.
The service, expected to launch in the second quarter, enables investors to monitor the progress of their fund orders and settle units of their fund transactions electronically.
One hope in the industry is ‘self-managed supers’ – do-it-yourself funds set up for up to four members who also act as the trustees of the fund – would be attracted to the mFund service.
The ultimate aim is that retail investors or self-managed super members will be able to trade funds more efficiently, and fund accounting and record-keeping will be simplified for fund administrators. Small super funds of less than five members account for 30% of the A$1.8 trillion in superannuation industry assets.
Fund automation can benefit fund managers, distributors and custodians by cutting down on the risk of manual errors that occur from the traditional method of faxing orders, and generally boosting the speed and efficiency of order processing.