Australian market a growing ‘honey pot’ for innovative overseas players

According to numerous speakers at the 2023 Stockbrokers and Investment Adviser Association (SIAA) conference, current regulation and compliance has pulled resources away from innovation in Australia’s wealth management and advice industry. 

Speakers discussed how firms in Australia were moving slower than their competitors overseas, and how this would play out if they brought those innovations to the Australian market, particularly as Australian wealth was set to double to $30 trillion in the next decade.

Speaking at a panel on managing the risks in financial services, Maria Lykouras, executive at JBWere, noted the importance of investing in tools that would help firms thrive as well as survive.

“I look at the way consumer behaviours are changing and the way they want to interact with us, particularly with the younger generation, and I have yet to see many players really moving forward in that space and trying to drive change in a way that’s going to respond to the future needs of our clients,” Lykouras said.

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“I think a big part of that is because we spend a lot of our time focused on regulatory changes and not being able to spend our money in places that would make a difference.”

In a separate panel on the future of wealth management, Neville Azzopardi, executive director for retirement at Colonial First State, agreed with Lykouras’ sentiment. 

“To the point of the Quality of Advice Review and what we can take from it, hopefully it means simplification, which means more time and you can start investing in the innovation of advice and strategy,” he said. 

The executive observed that this difficult regulatory environment had also proven to be a barrier for entry for many foreign players, some of whom were making successful innovations overseas. The ones that successfully broke into Australia would “play the game very differently”, he said.

This included by partnering with an existing Australian business.

“In the last five to seven years, you’ve seen players come back and they come back by stealth. I think about EFG International with Shaw and Partners, Focus with Escala Partners, LGT with Crestone,” Azzopardi said.

“I wouldn’t want to bet on coming here to hire a whole bunch of advisers to acquire clients. I think, if someone is going to come here and be successful, they’re going to do things fundamentally differently.”

He pointed to overseas firms like JPMorgan Chase that were already embracing technological innovations. Recently, the bank applied to trademark a product called IndexGPT that will use artificial intelligence towards selecting investments for customers.

As reported by CNBC, the product would use “cloud computing software using artificial intelligence” for “analysing and selecting securities tailored to customer needs” according to a US Patent and Trademark Office filing.

Azzopardi stated: “I think the barriers to entry are there for the existing business model. If someone’s going to come and win, they’ll have deep pockets and they’re going to have to play the game very differently. 

“You’ve got a number of years to watch it, but I will be starting to watch those deep-pocketed players offshore with a proven model.”

Andrew Bird, general manager for advice at JBWere Australia, highlighted that wealth managers were likely to eye the $15 trillion ‘honey pot’ sitting in Australian assets, poised to double by 2033. 

“The Australian balance sheet, household wealth is about $15 trillion. It’s about $9 trillion in housing, $6 trillion in financial assets, of which half of super. A decade ahead, assuming assets double every 10 years, might be a bit quick with a bit of inflation, but we’ve got $30 trillion sitting there in 10 years’ time,” he explained.

“That is a big honey pot, and given the way the system is working here, it’s a lower risk than it is in some other markets. So they’re going to be attracted and the money’s going to be there, we just need the adviser force to be there to service it.” 

However, Bird warned that there had been a lot of regulatory risk over the last few years, making it difficult to judge what would play out in Australian markets but that this could ease in the future.

“I do think that, as those things become a little less uncertain, we will see more players,” he said.