The big four banks are likely to re-emerge in the advice market in a post-FASEA landscape with different business models, a panel of industry experts has said.
Speaking at the Citi Investment Conference on Thursday, IOOF chief executive Renato Mota, Netwealth joint managing director Matt Heine and HUB24 CEO Andrew Alcock speculated on the possibility of the big four banks returning to the wealth sector.
Mr Mota said IOOF had given a lot of thought to how the wealth landscape would transform, particularly as it had moved to acquire the Pensions & Investments business from ANZ as well as buying MLC from NAB more recently.
The banks are not expected to be in wealth through to 2025, but beyond that, the IOOF chief expects they will resurrect their offerings with new and different propositions.
“I don’t think we’ll see the banks in wealth over the next five years and that’s important because they have been such a dominant feature of the past two decades,” Mr Mota said.
“And I think their presence in the past two decades, played an important part in what’s rolled out and what’s occurred since.”
Mr Heine referred to the UK market for insight into how banks could interact with wealth in the future.
“In the UK, very similar sort of landscape, and what we saw was the banks fully exit, but within 10 years they all come back into the market, but [with] very different propositions, very digital propositions, direct-to-consumer,” he said.
“I think there’s no reason it might not occur again in the Australian market, so certainly watch this space. The banks have got huge client bases that do have particular needs but I think whatever the advice proposition is, it will look very different to what they had in the past.”
When asked how much of a threat a re-entry of the banks could be, the IOOF boss said it was an “opportunity to collaborate”.
“Given our two transactions with ANZ and NAB, I think it’s fair to say we’ve had strong relationships [and] conversations with both of those organisations,” Mr Mota said.
“They recognise that we have a different mindset, different capability in wealth than banking. They recognise they need access to that capability.
“… And I think like most industries, creating a healthy ecosystem that delivers outcomes to clients doesn’t mean you need to own the whole value chain.”
Netwealth is similarly looking to foster relationships with the major banks after they have largely exited their platform businesses. Mr Heine said they will continue to need partners in the space, whether they decide to return to advice or not.
The banks could also be key for the platform group’s direct-to-consumer business, which is operating on the side of its broader advice segment.
“[Direct-to-consumer] is a hard market, I think it’s certainly evolving with the industry,” Mr Heine said.
“It is growing largely by default but we think at some point, that direct piece or the non-advised part of the market is going to continue to grow and they’re going to need solutions like ours to deliver on what they’re trying to achieve.
“It’s also a very expensive part of the market though, so the more people that are in that market promoting the benefits of going direct or investing directly, that can only help us. So whether it’s us spending our advertising dollars or the banks or someone else, we think the development of that particular part is pretty exciting in the future.”
Mulling the return of the banks, Mr Alcock from HUB24 simply stated: “Bring it on.”
“We live in a country where we’re very fortunate and we need to have thriving competitive industries and that helps us all to innovate and that’s good for consumers and good for us,” he said.
“We’ve come from a world where different models or different structures might have created some outcomes that weren’t right or had inefficiency, and as long as we end up in a landscape where we are heading in the right direction, I think competition’s great.”
Consolidation, scale key to wealth landscape
Like others, IOOF has forecast there will be a few mammoth superannuation funds with around $500 billion in funds under management (FUM), while there will be some at the smaller end of the scale, with around $200-$300 billion in FUM.
“There’ll be a top tier that is significantly larger than today, partly through consolidation and partly through continued growth,” Mr Mota said.
“We think that will drive down the cost to serve. The cost of administration, the cost of outcomes to clients will continue to come down and we do think that’s a feature.”
IOOF has positioned itself to sit within the top tier. After the MLC acquisition, it could be set to become the largest advice provider in terms of adviser numbers, the largest platform provider in terms of funds under administration and the second-largest superannuation company, in FUM.
The scale is expected to drive down the cost of service, Mr Mota said, with IOOF aiming to have the lowest costs and to be in the top quartile for service. It is targeting service as the differentiating factor for the brand, after price.
But, the chief added, there will be room in the wealth industry for smaller focused players with particular niches, in contrast to the mega providers.
“Where you don’t want to be, you don’t want to be caught in the middle,” Mr Mota said.
Likewise, Mr Heine believes there will only be more consolidation, particularly in the industry fund space.
“Particularly with the new regulations that are coming through, it is getting harder and harder to be a subscale industry fund, so half a trillion dollars is probably not an unreasonable target,” he said.
“We’ve seen also the small end consolidating over the last couple of months. So you’ve got Praemium and Powerwrap have now joined forces, Iress and OneVue are obviously in discussions – the industry will look very different in five years.”
Meanwhile, Mr Alcock said there would be a polarisation of different segments across different segments, with players needing to have clarity and focus around their consumer proposition and target market, rather than trying to be one size fits all.
“Scale isn’t everything, scale is important depending on where you’re going and I think we’ve proven that by seeing an industry where you’ve got new players like HUB and Netwealth or relatively new players building scale over time because of innovation or a different approach,” he said.
“There’ll always be room for that so you need to be good at what you’re doing but scale is vitally important at the same time.”
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