Big banks wise up on Australian wealth management

A question mark over the future of UBS's Australian wealth management arm signals that big banks are finding returns in the sector harder to chase than they first thought.

Wealth management was seen as one the great Australian growth industries of the 21st century. Naturally, global investment banks like UBS wanted a slice of the action, as did Australia’s big four banks and many others.

But after a boom period it is proving a tough market for the big players and many groups are looking hard at what their future strategy should be. Today in our DataRoom section Amanda Saunders highlights that UBS is considering its wealth management options in Australia (UBS mulls options for wealth management arm, October 3).

What makes UBS’s deliberations and its close link with Hong Kong so fascinating for people with long memories is that UBS in Australia is really the old Ian Potter and Co., which dominated Australian stockbroking in the 1950s and 1960s. Only JBWere rivalled its client base. JBWere ended up with Goldman Sachs, but the basic broking business was on-sold to National Australia Bank. In the case of Potter, the base broking business is now part of Bell Potter.

But the big Australian banks and the international banks have all found wealth management harder than expected.

The first problem big companies face in the wealth management arena is that they are hostage to the personal relationships between their advisers and clients. If the managers leave, there is risk that the clients will follow.

UBS found that In June about 20 per cent of the division's takings walked out the door with a handful of key Melbourne advisers who left to form upmarket boutique Escala, based in Collins Street.

Some six years ago in 2007, David Evans and others left Goldman Sachs JBWere to form Evans & Partners.

And in a totally different field, we have just seen swag of Elders cattle executives walk across to its rival Ruralco.

The big wealth management players, whether they are local or international, like to have standard products and standard operating systems. And they often expect big fees that work in most countries – but in Australia, we are different.

We have a massive superannuation savings pool but just over 30 per cent of that pool is managed by self-managed funds, and for the most part they are not always interested in standard products and the high fees that have traditionally gone with the wealth management industry. Moreover, the government stepped in to change the fee structure.

It’s not just the internationals that have encountered this problem. Our big banks entered the wealth management space usually with big acquisitions. The two biggest takeovers were the Commonwealth’s purchase of Colonial and NAB’s acquisition of MLC. Neither acquisition has met original expectations.

Everyone is looking hard at his or her operating models. And because of its historic significance there will be special interest in the way UBS handles wealth management in Australia.