Why the big four
want fund managers
It may only be a coincidence, but the top two performers in this year’s Money Management Fund Manager of the Year Awards are now the subject of takeover bids by two of Australia’s biggest banks.
Why the big four
want fund managers
It may only be a coincidence, but the top two performers in this year’s Money Management Fund Manager of the Year Awards are now the subject of takeover bids by two of Australia’s biggest banks.
Most of the analysis surrounding these deals has concentrated on the cost savings inherent in things like merging back offices, merging IT and closing bank branches.
Granted that these are significant costs, but most of these analysts are missing the point. The cost savings in the case of the Commonwealth and Colonial merger seem small compared to the amount the Commonwealth is forking out. Would you spend $8 billion on something that was going to save you $300 million a year?
There seems to be something bigger going on here. And it’s got to do with the fun-damental issue in retail financial services — distribution.
Two months ago, AMP was by far the biggest owner of financial advisers in the country. With about 2,000 advisers spread across three separate businesses, its po-sition seemed indomitable. The advice businesses also made their mark on AMP’s bottom line. Last year, AMP Financial Services profit grew dramatically, thanks mostly to its adviser distribution which netted about 80 per cent of revenue.
Two months ago, rivals such as the National and the Commonwealth paled in comparison with less than half the adviser force. Assuming the Colonial merger and the MLC acquisition get the green light, the two banks will soon both have fi-nancial planning forces numbering about 1500. The Commonwealth’s inflows have been sitting pretty over the past year, thanks mostly to its strategy of cross-selling funds management products to its massive client base through advisers. Imagine what could happen with double the advisers.
Even if you took away the advisers who form part of the Colonial and MLC em-pires, there is something even more valuable to the banks — relationships with in-dependent advisers. While the banks have been remarkably successful cross selling products to their own customer base in recent times, they have never really cracked the independent adviser market.
One of the reasons banks have failed to build up significant relationships with in-dependent financial planners is the lack of faith advisers have in their funds man-agement operations. A cursory glance through all the winners in the 14 years of the Money Management Fund Manager of the Year award winners will tell you that apart from a flurry of wins by Westpac in the early awards, the big four have not featured prominently.
MLC and Colonial’s funds management businesses have excellent brand names among advisers and growing awareness among consumers. Armed with these brands, the banks will be able to continue to exploit their massive databases and, at the same time, reach the elusive high net worth individuals through independent fi-nancial planners. Never mind the huge distribution potential through the Com-monwealth’s massive ComSec Web site and the National’s burgeoning Internet distribution strategy.
