How much is a wealth management business of the scale of Colonial First State or, indeed MLC Limited, worth in the Australian market today and would you want to invest in such an entity?
Those represent crucial questions in the context of the Commonwealth Bank’s announcement of the nature of its demerger of CFS Group, including the Colonial First State, Colonial First State Global Asset Management, Financial Wisdom and the Aussie Home Loans businesses.
To be brutal, what was announced by CBA chief executive, Matt Comyn, last week represented an end to the big banking group’s 18-year adventure in wealth management – an adventure which began in 2000 when it acquired Colonial Limited when it was being run by Chris Cuffe.
The start of the new millennium represented a heady time for the major banking groups, borne of the success of the Superannuation Guarantee and the float of institutions such as the Commonwealth Bank and Telstra causing boards to believe that the broad spectrum of wealth management opportunities from funds management through to financial planning and mortgage broking would contribute significantly to their bottom lines.
The Commonwealth Bank was not alone in its acquisitive push into wealth management as evidenced by NAB, ANZ and Westpac, but it is worth noting in the wake of last month’s demerger announcement that it paid $373 million for Count Financial in 2011 and $185 million for its original majority stake in Aussie Home Loans in 2012, suggesting that peak season for wealth management acquisition was six years ago.
Q: So, what changed?
A: Industry shortcomings, which altered the political environment and gave rise to a commensurately changed regulatory environment which, in turn, gave rise to necessary changes to the commercial underpinnings all of which were crystallised by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
It is also no coincidence that the Future of Financial Advice (FoFA) changes, driven in large measure by industry superannuation fund campaigning, were also passed by the Parliament in 2012, forcing substantial changes to underlying commercial models and practices.
The reality, of course, is that the boards of the major banks had been noting a deterioration in the contributions being made by their wealth businesses for most of the years following the introduction of the FoFA changes and had largely made up their minds about the future well before the debate about a Royal Commission had even begun – something evidenced by the actions of ANZ and a number of insurers.
So, given all of the above, does an investment in a wealth management business of the scale of that being demerged by the Commonwealth Bank make sense in July, 2018? Perhaps not until some key component parts fall into place.
Those component parts are made up of the findings of the Royal Commission, the final recommendations of the Productivity Commission, the ultimate shape of the Financial Adviser Standards and Ethics Authority regime, and the resultant legislative and regulatory environment which is put in place by the next Federal Government.
Any other approach will represent a major punt.
