It's taken them 60 years to figure this out???
by Tony Boyd
3 March 2016
ANZ Banking Group's 60 year flirtation with wealth management has ended in ignominy. The bank set up ANZ Funds Management in 1957. The bank started to take the business seriously in the late 1980s and early 1990s. By that time the bank had expanded into a range of different wealth management product lines including life insurance, trustee services, unit trusts and funds management.
But this hotch-potch of entities were never properly consolidated or given a common purpose. The bank's wealth management division never actually figured out the answer to one simple question: Why do we exist? The result was that the bank stumbled from one failed strategy to another. This was compounded by failures in execution. If there is a pecking order of notable mistakes made by ANZ in wealth management the one involving Frank Russell would have to be at the top.
The bank set up a partnership with the American firm, which is famous for its indices, to offer ANZ clients a range of multi-manager investment products. This partnership exhibited confusion about where the value resided in the wealth management chain. ANZ appeared to put growth in total funds under management ahead of profit margins. It paid Russell about 60 basis points for the privilege of having its relatively vanilla funds management products. It would have been smarter for ANZ to have its own actively managed funds earning 100 basis points.
By the time ANZ moved to a new business model in 2002 it had about $2.3 billion in the Russell multi-manager products. The next iteration of the strategy ranks second in the list of notable mistakes. This was the 50-50 joint venture with ING in the platform space. ANZ kept 100 per cent of the distribution and handed all asset management to ING.
This mistake was compounded by the fact that ANZ never addressed the problem of how to unwind the joint venture should that be necessary. It did become necessary and the result was a mess. The global financial crisis meant ING was distressed and it was willing to change the arrangements.
The later years of the wealth management business caused much frustration for former CEO Mike Smith, who never really got his head around why it was a failure. The departure of Joyce Phillips spells the death knell of the wealth management experiment. For some reason, a succession of chief executives and talented wealth management executives never figured out how to sell quality retail financial services products through the branch network.
Big four can't make it work
It sounds simple but the other three major banks have also struggled to achieve this marriage of banking and wealth. National Australia Bank bought one of the best wealth management companies in Australia, MLC in 2000 and then spent the next 15 years taking the business nowhere. It is being dismembered to ease the capital burdens within the group.
Commonwealth Bank of Australia's purchase of Colonial should have provided the perfect foundation for building the country's premier bancassurance business. But the combination of the wrong remuneration incentives and slack oversight of the financial planning division was incredibly destructive.
It severely damaged the CBA financial planning brands. Just as important was the damage done to the reputation of the bank's financial planners within the CBA retail network. The referral of highly prospective clients from the branch network to quality financial planners only works if there is a strong foundation of trust. It will take time to rebuild that at CBA.
Westpac Banking Corp stands out as the only one of the big four banks to have shown considerable success in using its powerful distribution network to sell wealth products.