Scale may not be the right answer
By nowmost of the industry has heard that Westpac will buy Rothschild Australia Asset Management.
The industry has also seen the joint venture announcement between ING and ANZ Funds Management, and the National Australia Group preparing to spend $200 million on expanding its wealth management business.
The old days are back. The days of the industry scrambling for scale have returned after a quiet year in 2001, marked by the tech wreck hangover and the tragic events of September 11. The major players in these most recent moves are the most well-known and established — the banks.
The trend here is one which began two years ago. While the fund management industry provides product for distribution channels, the banks have figured out that with their massive client bases, all they need to succeed is a funds management operation. But is it right? Is scale the solution to long term success?
The Financial Services Reform Act (FSRA) has muddied the waters in the short-term but prior to its introduction, the number of planners seeking to branch out on their own was ticking along at a steady rate.
Scale in funds management has not resulted in strength in performance figures either. The stand out winners in this year’sMoney Management/Assirt Fund Manager of the Year awards have not been the biggest players. In fact, the big names in the industry have had a torrid time in recent years, despite their scale.
The winners over the last two years, Credit Suisse and UBS, have a much lower profile when compared with some of their rivals, they hold no distribution and offer retail products primarily through administration platforms such as master trusts and wrap accounts.
Further evidence of the low key approach is found in Investor’s Mutual and Platinum, both boutique houses, which took out the Australian and international equities categories respectively.
What does this mean for the banks, and their strategy of gaining scale? In the short-term, not much but if they see the funds management operations and planning networks they own as a way to push greater level of product, then they will become their next albatross.
In the past, it was lack of diversity in product and distribution, now the exact opposite could also spell trouble, with staff and clients heading to competitors who have built scale through focusing on funds management or the financial planning relationship and not the other way around.
AUTHOR
Jason Spits
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