Will banks return to wealth management?

CBA Big four banks ANZ wealth management NAB westpac

4 April 2023
| By Laura Dew |
image
image
expand image

There is an estimated $3.7 trillion opportunity for banks to return to wealth management, and with the Quality of Advice Review focusing on digital advice, the temptation could be too big for them to resist. 

The big four banks had largely exited financial advice in light of the Hayne Royal Commission, but research house Acova Capital said there was a “compelling strategic rationale” for them to return. 

This was thanks to a maturing technology ecosystem, low capital expenditure and a more pragmatic compliance regime. 

Daniel Toohey, executive director of Acova Capital, said: “A thriving ecosystem of wealth tech solutions have emerged with the capacity to re-engineer and de-risk the model in partnership with banks to disrupt the sector. With a clean slate and no legacy (other than bruised egos and reputational scars), banks with more contemporary digital core platforms, re-engineered modular tech architectures and millions of customers with significant unmet wealth management needs now find themselves ideally positioned and poised to enter the market.

“Technology has simply made the basic services easier to provide and access with significantly less capital and a seemingly lower risk business model.”

Toohey also noted the Quality of Advice Review’s focus on digital advice to increase the accessibility and affordability of advice for broader Australians, saying it was “only a matter of time” before the banks used this to their advantage.

“While the scars from the Royal Commission fade, the next generation of leaders, hunting for new areas of growth, undoubtedly will lead to exploring more optimal pathways to capture value from customers. The wealth-tech ecosystem is maturing and in our view, there is significant opportunity to package a new model — offering attractive margins, lower risk and significantly lower capex to execute and build organically.”

For the big four banks, there was an estimated $3.7 trillion in unadvised wealth pool with CBA holding $1.3 trillion and Westpac holding just over $1 trillion. ANZ had $668 billion while NAB had $713 billion.

Looking at customer volumes, CBA had over 11 million followed by Westpac at 9.6 million while ANZ and NAB had around 6 million each.

“If we assume the demographics of the big four Australian retail customer bases are representative of Australian population with similar wealth distribution characteristics, we estimate there is potentially ~$668 billion (ANZ) to ~$1.3 trillion (CBA) of unadvised asset pools across super and non-super financial assets (excluding deposits),” Toohey said.

“Assuming a 20 bps operating margin, the potential profit pools range from ~$1.3 billion to ~$2.6 billion (or ~$0.5 billion to ~$0.9 billion ex super), depending on the bank. So, even a relatively small client win/conversion rate is likely meaningful to the bottom line. 

"Maybe the wealth tech ecosystem, low capex, high RoE business model, alongside a more pragmatic compliance regime provides the key to unlocking the holy grail? With various aspects of the market opportunity aligning, the temptation will surely be too great for the banks to resist.”

Read more about:

AUTHOR

Add new comment

The content of this field is kept private and will not be shown publicly.
 

Recommended for you

 

MARKET INSIGHTS

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

Bradley

Dear CEO and board, It's time to start some VERY HEAVY LOBBYING on behalf of advisers which could save your platform re...

15 hours 32 minutes ago
JOHN GILLIES

He is every thing ASIC said he was BUT How on earth did he expect to get away with it????? . these guy's who dip in...

17 hours 45 minutes ago
Chris Cornish

A tad optimistic from Morningstar. Adviser numbers are somewhat irrelevant; it all comes down to the platform and whethe...

18 hours 51 minutes ago

A former financial adviser has been banned by ASIC from providing financial services for inappropriate advice, among multiple breaches....

1 week 1 day ago

Treasurer Jim Chalmers has handed down his third budget, outlining the government’s macroeconomic forecasts and changes to superannuation....

2 weeks 2 days ago

Iress has announced it is strengthening its security settings after suffering an unauthorised access of its systems over the weekend....

2 weeks 3 days ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND