Funds management driving bank profits

Australia’s five largest banks increased their wealth management income by 19.2 per cent and their funds under management by 11.3 per cent in the first half of 2004-05, amid warnings that margins would be squeezed as customers demanded better investment service in future.

KPMG’s Major Banks: Half Year 2005 report, which incorporated data just released by National Australia Bank, found wealth management and strong growth in business lending were the two main contributors to the big five’s healthy operating profits, which rose 20.6 per cent to a total $7.8 billion for the last half year.

ANZ, Commonwealth Bank, National Australia Bank, Westpac and St George have collectively boosted their wealth management profits and funds under management for the last three halves. KPMG partner John Teer said the sustained increase “is starting to provide strong support for the amounts paid by the majors some years ago to acquire their wealth management platforms”.

However, a general demand from customers for more personalised service, and the introduction of choice of fund, threatened to spoil the banks’ wealth management party.

“Overall, the banks enjoy a lower cost of customer acquisition, but suffer in terms of the provision of more customised, sophisticated, value-added advisory services,” Teer said. “Boutique investment and advisory companies are significant rivals to the established industry heavyweights.”