Australia still attractive despite Hayne damage on advice

According to Cerulli Associates managing director for Asia Ken Yap, super funds will still need to make exactly the same decisions about asset allocation, currency hedging and liquidity they always did, and nothing in the royal commission is likely to make them choose any different underlying managers than they have done in the past.

“Australia remains an attractive market for investment managers and asset consultants, both local and global,” he said.

“The damage has been on the distribution and retail advice side.”

Statistics from the Australian Prudential Regulation Authority (APRA) show the extent of the royal commission’s reputational impact on retail fund managers (those run by banks and financial services companies), compared with not-for-profit industry funds. 

In 2018, the fund with the biggest outflows in the entire industry was AMP’s superannuation product, while the biggest inflows were to industry fund AustralianSuper. In the June 2018 quarter, assets under management in industry funds outstripped those of retail funds. Industry funds are on track to overtake self-managed super funds as the largest single segment of the industry.

“AMP’s numbers, in particular, provide a useful illustration of just how badly this side of the industry had been hit,” Mr Yap said. 

“In financial year 2017, it made a statutory net profit of $848 million in 2017; in 2018, it was $28 million, thanks to ‘advice remediation’, which means money put aside to be paid back to people it should never have been charging in the first place. The wealth management business suffered net cash outflows of $3.97 billion, from net inflows of $931 million the previous year.”

While the royal commission did not change the vertical integration model, which has been dominant in Australian financial services, most of the big four banks started to sell their life insurance and wealth management businesses well before the commission released its final report on 4 February. 

These include ANZ, which sold its life insurance business OnePath Life to Zurich for $2.85 billion in 2017; and Commonwealth Bank of Australia, which sold Colonial First State Global Asset Management to MUFG for $4.1 billion in 2018, and its life insurance arm CommInsure to ANA for $3.8 billion in 2017.

“National Australia Bank, which has pledged to sell its wealth division, MLC, probably in the 2020 financial year. Westpac, however, has said it has no intention to let go of its wealth business,” Mr Yap said.