Australia | Nov 10 2020
Following the exit of the major banks from wealth management, specialist providers have stepped up but are likely to endure several years of increasing competition in price and technology.
-Specialist providers to benefit from software cycle upgrades
-Margin pressures persist for Netwealth and Hub24
-Perpetual Private able to benefit from advice disruption
By Eva Brocklehurst
A new era for Australia's wealth management industry is likely to be characterised by increasing competition, as platforms try to capture share and scale. Since the Royal Commission and the divestment of a large part of wealth operations by the major banks, transformation of the industry has been ongoing.
Following the exit of the banks from wealth management, independent financial advisers and specialist platform providers have benefited from the disruption. Nevertheless, they remain small and, JPMorgan assesses, will have to wear several years of increasing competition in price and technology.
Challenger ((CGF)) suspects that disruptions in the bank-aligned and independent advice market, which have created a difficult environment for domestic annuity sales, could now be easing, noting adviser movements appear to have stabilised.
Citi calculates the number of financial advisers in Australia continues to decline and advisers remain key to choosing a platform, with those leaving the vertically-integrated major institutions providing a tailwind for both Netwealth ((NWL)) and Hub24 ((HUB)). In this vein the outlook appears highly uncertain for AMP ((AMP)).
Citi observes the recent bid for AMP from US-based Ares Management highlights the prospect that tie-ups with other parties may be more suitable. While the offer is broadly in line with valuation, UBS, in noting AMP has surplus capital, envisages a wide range of potential suitors.
If the business continues in its present form, Citi finds it unclear as to the precise structure of the wealth management segment. The issue remains as to how AMP can provide affordable advice to the mass market under a more stringent regulatory and advice standard. Technology is likely to play an important part, the broker adds.
There will be increased reliance on software technology and a software upgrade cycle that will benefit specialist providers and this is the backdrop that JPMorgan believes will confront the industry, as the broker initiates broader coverage of the sector.
JPMorgan asserts the wealth management industry has been typically slow to upgrade software but rising costs and changing demands from end-use clients signal the need is becoming urgent.