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netwealth banking on managed funds growth

IN the current financial climate the launch of a new online investment and share trading service seems an unlikely proposition.

But the people behind netwealth – the same people who ran the successful Heine funds management group – evidently can see a bright future beyond the current woes.

The portents are certainly not promising.

Charles Schwab Australia, the Australian offshoot of the successful US online broker, has lost $26 million since being launched in February.

Another new online venture, TradingRoom, already has announced plans to restructure, despite the heavyweight backing of Macquarie Bank and John Fairfax Holdings.

E*TRADE lost $8.0 million in the half-year to last December while Sanford posted an operating loss of $11.7 million for the year to June.

netwealth is moving into a crowded market, with more than 30 online competitors, including Your Prosperity, which offers a very similar service.

So how is netwealth going to succeed?

Managing director Michael Heine said Australians were world leaders in their level of share ownership and their embrace of the Internet, resulting in a 53 per cent increase in the number of people trading online in the past six months.

He predicted that managed funds would be the next area of interest as investors recognised the complexity of identifying, researching and continually monitoring their direct share investments.

“Most people do not have the time or information to adequately do this,” Mr Heine said.

“That is why I see a significant growth in investment in managed funds.”

A unique aspect of netwealth’s product, according to Mr Heine, is that investors can manage the whole process online.

This includes reviewing managed funds, reading the prospectus, investing their money and establishing a savings plan.

“There is no need to print application forms and send them off and then wait for information to be mailed back,” Mr Heine said.

Mr Heine previously was managing director of Heine Management, which had funds under managemet of $2.75 billion when it was acquired by Mercantile Mutual in 1999 for $110 million.

The netwealth web site allows users to research and invest in approximately 400 managed funds. Most other online brokers also offer an extensive selection of managed funds.

A big advantage of investing via the Internet is that users avoid paying entry fees, which average 4-5 per cent for ‘offline’ retail investors.

netwealth has gone a step further by developing 10 self-branded investment funds, comprising four sector funds (eg Australian shares fund, enhanced cash fund) and six diversified funds to cater to different investors. netwealth appoints a mix of specialist investment managers to handle these funds.

Other features of netwealth are a wrap administration and reporting service, a portfolio management system, a range of calculators and links to useful sites.

The share trading service charges a competitive fee of $20 for trades worth up to $20,000 and 0.11 per cent for larger trades.

By comparison, Westpac Broking’s fees are among the lowest in the market, starting at $15.95 per trade, while ComSec, the market leader, has standard fees starting at $31.60 per trade.

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