Why NAB and Westpac are right on wealth management
Banking groups such as National Australia Bank (NAB) and Westpac which have kept their wealth management businesses as separate entities have fared better than those which kept them in-house, according to a recent academic review of the banking sector.
The review authored by Adjunct Lecturer in Finance at the Sydney Business School — University of Wollongong and founder of management consultancy Agape International, Shantha Yahanpath, has examined the profitability of the major banks and the influence of their wealth management divisions and has concluded that their returns have probably fallen below shareholder expectations.
However it also argues that the banks would be foolish to withdraw from the arena in circumstances where wealth management will continue to be a growth sector on the back of an increasingly financially savvy ageing population.
The review said that while the foray into wealth management by banks had the potential to increase shareholder returns, "thus far the results have been mixed. The increase in revenue has been mainly due to economic cycle driven asset growth".
It said effective strategies to lighten the regulatory burden would help in increasing shareholder returns from wealth management.
However in dealing with the relative success of the various wealth management strategies, the review concluded that "it varies among banks depending on the chosen strategy".
"It appears that integration of wealth management into banks has not been as successful as keeping the wealth management division as a separate entity," it said.
"For example, CBA with their integration strategy appears to have not performed well in the wealth management sector. In contrast, Westpac, and NAB in particular have benefitted from keeping the wealth management divisions separate."
"With regards to the question of early entry of NAB into wealth management by acquiring MLC appears to have given them a first mover advantage but late entry by Westpac by acquiring BT Financial Group has not deterred them from making headway in wealth management," the review said.
"ANZ as a late entrant has also performed reasonably well. Therefore it is not the timing of or the time in the wealth management sector but the strategies crafted and implemented appear to be the key to the success."
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.
