Further consolidation could be set to sweep through the Australian wealth management industry, with market participants increasingly speculating that some of the struggling mid-tier brokers look like takeover targets.
Yesterday, UBS vehemently denied reports in DataRoom that it was looking to hive off part or all of its wealth management arm. But senior industry sources are saying fresh consolidation is inevitable.
Invast Financial chief market analyst Peter Esho said it was “a matter of when, not if” consolidation swept the mid-tier sector. Another senior market analyst, who requested anonymity, stressed the high fixed costs of running a retail brokerage.
“It is clear that there are too many retail brokers in the market,” the analyst said. "There are a lot which aren’t making any money."
The wealth management market is dealing with significant structural changes, with self-managed super funds becoming increasingly favoured by high-net-worth clients, who were formerly bread and butter customers for brokers.
A number of brokers had expressed hope some months ago that the post-GFC market malaise had run its course but despite the recent rally in equities markets, trading volumes have remained low.
Private client brokers have also been hit by new onerous requirements for financial advice, which have increased costs and paperwork around compliance. They have courted the government to wind back the Future of Financial Advice (FOFA) legislation.
The brokerage industry has been struggling since ill-timed broker listings in 2007 from Wilson HTM, Austock and Bell Financial Group. Later consolidation saw Patersons Securities absorb the listed William Noall, while the ANZ bought out its remaining interest in internet broker Etrade. After that, Bell Potter took over privately-held Southern Cross while Austock sold its broking arm to Intersuisse.
A squeeze in broking margins forced loss-making stockbroker Wilson HTM, which is 19.9 per cent owned by Deutsche Bank, to lay off 14 people last month. Following the redundancies, Wilson HTM has 13 analysts serving the small to mid-cap part of the market. The stock exchange-listed company declared a loss of $1.6 million for 2012-13.
Given the struggles facing mid-tier private clients, it is unlikely that any deal would involve large sums of money, making a takeover a relatively risk-free proposition for some of the stronger industry players.
Mr Esho said Bell Potter Securities was in a strong position to buy.
“Bells are the most active in soliciting others (brokers) to sell their businesses," another industry source said.