No, you do not get the chance to sell retail funds by buying them at wholesale prices, the term does not denote any kind of onselling or third party transactions. People have asked in aus.invest if the wholesale/retail thing meant there was some sort of reselling, starry eyed individuals thought up how much money they could make by buying a wholesale fund and selling units to friends and family, pocketing the extra margins as well as benefiting from the appreciation of the investment itself. The funds management industry differs somewhat from the tupperware industry, I hope this article will clear things up.
A wholesale fund is no different to a retail fund except that there are lower fees and a higher minimum entry amount. Every fund has management expenses that covers all the costs of doing business. These include administrational costs such as account tracking and sending out updates to fund members. Since many of the funds will allow you to get in with about $1,000 or even less (usually if you are setting up a savings plan), this can mean a relatively high proportion of management expenses are incurred mailing things out to members and processing payments.
Typically a wholesale fund will have a minimum entry amount of over $100,000. Because they are taking money in larger blocks obviously there are greater economies to be had and thus members of wholesale funds will create a lower cost per dollar to administer the funds. Thus, management fees, summarised by the management expenses ratio (MER) will be lower in a wholesale fund. You never actually see the MER on your statements as a visible deduction, management expenses are invisible and come out of the total returns. The MER is stated in the prospectus.
It is not uncommon for funds to market the same investment as a wholesale fund or a retail fund and quote a different MER for each. If the fund returns 16% before expenses, the retail version will return 14% to investors if the MER is 2%. The wholesale version will return 15% if the MER is 1%.
There isn't really any way of getting into wholesale funds directly unless you do have $100,000. Most master trusts do allow you to get into wholesale funds indirectly though, with lower entry amounts, though you have to weigh that against the cost of the master trust itself.
According to a study I read about in Money Management magazine, performed by Rainmaker Information, the median fee for wholesale funds is 0.60%. The most expensive funds were international equities, then Australian equities, property, "other assets", international fixed interest, domestic fixed interest and then cash.
“Using the average asset allocation for super funds, the average investment fee benchmark after adjusting for asset allocation is estimated to be 0.63 per cent,” says Rainmaker Information director of research Alex Dunnin.
According to Dunnin, the research contained in the latest Rainmaker Roundup report reveals that with retail investors usually paying fees of 2-3 per cent, only one quarter of fee revenue now goes to fund managers.
“It is clearly erroneous then to blame fund managers - that is the manufacturers - for so-called high fees when the majority of fees are really charged by the distributors,” says Dunnin. “This revenue shift is obviously behind the current renewed focus towards distribution which is driving so much strategic thinking across the financial services industry.”
Distributer costs are the fees funds have to pay to get a place on a master trust menu, commissions paid to advisers and their dealer groups, trustees assembling multi-manager products etc.