Wealth management margins face significant squeeze
Major investment bank UBS has lowered its earnings expectations on AMP Limited and rated IOOF as a “sell” in a harshly pragmatic assessment of the current state of the Australian wealth management industry, including a prediction that platform profits could decline by as much as 30 per cent.
The assessment, contained in a market report issued this week, has made clear the company’s belief that recent efforts by platforms in terms of cutting fees may not be enough.
“Successive recent admin fee cuts from the major providers are in our view a band aid solution,” the report said. “They may ease outflows, however these moves could ultimately exacerbate Legacy/Contemporary shifts and revenue pressures”
“Even if major wealth managers undertake radical cost surgery, platform earnings could decline more than 30 per cent from here,” the report said while confirming the firm had lowered its earnings assessment for AMP and IOOF to reflect this pressure and rated IOOF as a “sell”.
Backing its gloomy assessment of fee margins, the report said the company had reviewed over 130 product disclosure statements (PDSs), mapping fees across $660 billion of funds under management, representing more than 95 per cent of the major and speciality platform providers.
“We estimate major wealth management fee margins could drop by around 40 per cent over five years if contemporary fees fall to 30 basis points and legacy outflows accelerate” it said.
The report also forecast sharp profit reductions in wealth management, even if cost bases were cut by 20 per cent.
Recommended for you
A third private equity player has emerged in the bidding war to acquire Insignia Financial, rivalling Bain Capital and CC Capital.
The proportion of advisers working at a privately owned licensee rose to 78 per cent in the fourth quarter of 2024 as over 1,000 advisers left a diversified firm.
Advice around a client’s concessional contribution cap was the reason for the latest written direction by the Financial Services and Credit Panel.
The financial advice business has expanded its range of services with the introduction of Apt Wealth Legal Services to meet clients’ evolving needs in estate planning and family law.
