Westpac’s wealth arm BT targets self-managed super funds

The Australian 12:00am January 3, 2018

Michael Roddan

Westpac, the only major bank not to completely or partially divest its wealth management businesses, is planning to ramp up its charge into the $700 billion self-managed superannuation market.

While other major lenders are shedding their troublesome pension, investments and life insurance operations, Westpac has backed its wealth management arm, BT Financial Group.

Key to its strategy of retaining the business is targeting the fast-growing SMSF market, which has exploded to house $697bn of the nation’s retirement savings.

The decision to retain its wealth management unit could set Westpac apart from its rivals Commonwealth Bank, ANZ and National Australia Bank, which are refocusing on bread-and-butter banking and mortgages.

CBA recently struck a deal to offload its troubled life insurance business CommInsure and is planning to divest itself of its global asset management arm.

Last year ANZ sold its life insurance arm to Zurich Australia, following the sale of its pensions and investments business to wealth manager IOOF.

NAB in 2016 shifted 80 per cent of its MLC life insurance arm to Japan’s Nippon Life.

However, Westpac has chosen to run a series of investor days telling shareholders it was thoroughly committed to BT Financial.

Chairman Lindsay Maxsted and chief executive Brian Hartzer have also backed BT, which offers insurance, wealth management and investment services for customers of the country’s second-largest bank.

The SMSF strategy comes as a battle rages in the $2.4 trillion super sector over the allocation of default assets, which are managed mostly by the not-for-profit industry fund sector.

The union-and-employee-backed industry funds are campaigning against what they fear is a move to allow for-profit retail funds, run by the large banks, to access a greater share of Australia’s savings.

However, many Australians have been deserting both retail and industry funds to manage their own nest eggs. Self-managed fund assets rose 9.8 per cent from $635bn last financial year, and now represent 30 per cent of all super assets.

BT Financial general manager of platforms and investments John Shuttleworth said only a fraction of the 600,000 self-managed super fund owners were taking advantage of investment platforms provided by major wealth managers.

“There’s around $700bn in self-managed super funds, and it’s been growing,” Mr Shuttleworth said.

“There’s nothing really self-managed about them, because they’re quite complex structures. But only 4 or 5 per cent of that $700bn is already on a platform. There’s a huge opportunity for us to get more of that money.”

A platform or wrap helps consumers access a range of shares and managed investment options, usually at wholesale prices. They administer superannuation assets and simplify the investment process as the tax reporting and portfolio valuations are consolidated.

Westpac has already spent about $500 million on an IT project for its Panorama platform, designed to fend off the threat from digital upstarts.

BT Financial has a 20 per cent share in the platforms market, and Westpac sees a great benefit if it can draw just 10 per cent of SMSF assets to its platforms.

For comparison, AMP has an 18 per cent share in the platform business, while CBA controls about 15 per cent.

The $2.4 trillion pool of superannuation savings is roughly divided into thirds, with industry funds, retail funds and SMSFs each accounting for savings outside public sector or corporate nest eggs. The SMSF market has been the fastest growing of the three, with more savers opting to take greater control of their savings, despite a generally poorer track record of investment returns.

With about $2 trillion in investment assets on top of super savings, Mr Shuttleworth said there was a big opportunity for the bank.

“If you look at the economics, you’ve got a $4 trillion market. Someone has to administer those assets,” he said.

“It’s a highly attractive market.

“Even with pricing pressure and margin pressure, it’s a highly attractive proposition because of the cash and the investment returns you can get.”

Over the year through to September, funds under administration on BT Financial platforms rose 6.2 per cent to $113bn. The number of SMSF funds on Panorama doubled over the year to 4300. The number of investors nearly tripled to 12,000 over the same period. Advisers using the platform rose from 800 to 1350.

At the bank’s recent full-year results in November, Mr Hartzer said Panorama was setting up the bank for future growth following significant investment.

“The core idea here is that the Australian population is ageing. They need advice, they need insurance,” Mr Hartzer said.

“We still have work to do in advice and insurance sales. (But) BT is going to be an increasing point of difference over the next few years.”