Wealth Management Strategy Discussion Garry Mulcahy CEO Strategy and Marketing, Wealth Management 9 April 2001
Nov 19, 2014
Wealth Management Strategy DiscussionGarry Mulcahy
CEO Strategy and Marketing, Wealth Management9 April 2001
2
Agenda
Wealth Management Business Portfolio Approach
Domestic Business Analysis
International Opportunities
Business Model Drivers
Summary
3
Moving towards:• Funds Supermarket with
small number of key players• Margin contraction• Involving product choice:
managed funds, personal portfolios and direct share management
• Equity focus in asset allocations
• Polarisation in asset management industry with competition between boutiques and the big 4 to 5 players
• Multi-channel access with a significant employee owned IFA distribution
• Private sector dominance of pension plans
Moving towards:• Funds Supermarket with
small number of key players• Margin contraction• Involving product choice:
managed funds, personal portfolios and direct share management
• Equity focus in asset allocations
• Polarisation in asset management industry with competition between boutiques and the big 4 to 5 players
• Multi-channel access with a significant employee owned IFA distribution
• Private sector dominance of pension plans
Our portfolio of businesses is diversified geographically across the Market Maturity Curve
Asia
Australia
US
UK
Europe
Immature Emerging Evolving Highly Evolved
Japan
New Zealand
4
Horizon 1- Efficiency
Horizon 2- Grow
Horizon 3- Develop
Time
Profit
Lifetime
Insurance
Retail Investment Platforms
Corporate Solutions
PlumAdvantEdge
Your Prosperity/NOLTAsia JVs - HK. Indonesia
Asia JV - Thailand
Project Endeavour
Future Acquisition ?
It is also well diversified within our key domestic market
5
Agenda
Wealth Management Business Portfolio Approach
Domestic Business Analysis
International Opportunities
Business Model Drivers
Summary
6
Key Value Drivers Behind Operating Profit
MOSPROFIT
TOTAL
RETURN
MARK TO MARKETREVALUATIONS
VALUE OF NEW BUSINESS
VALUE OF INFORCE BUSINESS
FEES
EXPENSES
ACQUISITION
MAINTENANCE
FUM/A
NET FUNDS FLOW
INVESTMENT EARNINGS
FUM/A
EXPENSES
LAPSES
MARGIN DISCOUNT RATE
SALES
MARGIN
SELLING EXPENSES
MULTIPLIER
PREMIUMS/DEPOSITS
CLAIMS/REDEMPTIONS
7
We are executing a multi-domestic global strategy which leverages core capabilities in retailing and distribution
Retailing and Distribution
Retail Servicing
Principal Investment Advisory
(PIA)
AssetManagement
Custody/ Trading
Basis for winning proposition in global markets
Global Capabilities
Domestic Capabilities
Multi-domestic model for global
operations- ‘design globally, execute locally’
Value Chain Focus
Appropriate Model for Global Operations
Global model- design and
execute globally to realise scale and
process efficiencies
We must continue to increase
the scalability of the existing
business model in the face of
margin contraction and industry
consolidation.
Our target activities favour a
‘multi-domestic’ approach
We will adapt existing exportable
(domestic) capabilities to suit
requirements of new markets
Need to adapt capabilities may
require alliances with local FS
players or innovative
organisational structures
8
Global Trends Across the Value Chain
Distribution/Advice
Distribution/ Retail Service
Investment Management
CustodyInvestor
• Government mandates and incentive for self funded pensions
• Increasing legislative complexity resulting in demand for advice
• Greater demand for independent advice
• Increased self-service
• Increase in IFAs
• Greater number of distribution channels (IFAs, workplace, proprietary, direct)
• Increasing dominance of a small number of investment supermarkets
• Greater automation up and down the value chain
• Insurance breaking into core components of investment and protection
• Greater variety of protection products
• Margin contraction
• Polarisation of investment management reflecting emergence of boutiques in the face of significant consolidation
• Increased use of Index funds
• Margins will further contract as value migrates down value chain
• Global consolidation is well progressed
• Outsourcing will increase flow to consolidated players
• The segments furthest from the investor have undergone the most change to date and are those areas most conducive to deriving scale economies
• However, new technologies including web-based advances are slowly feeding up the value chain and beginning to drive changes at customer touch-points
• Trends in the advice market, however, reflect the growing complexity of legislative structures, proliferation and increasing prevalence of higher risk investment products
9
Retailing and Distribution
Brand
Retail and Wholesale Servicing1
Principal Investment Advisory
Investment Management
Execution and Processing
Internal- NAM
External Fund
Managers
NAG Custody
Other External
Customers
Multi Manager
Common Admin
Platform
ProductBrand
Consolidated ‘engine’
Sanford
Hartley Poynton
JB Were
Interface to Banking Platform
Specialist Alliances
Desired future state
Business focusOutsource
To compete and sustain profit growth requires scale. The business model will be based on a common administration/ servicing platform which supports multiple value propositions/channels
Your Prosperity/NOLT
IFA’s
Godfrey Pembroke
Apogee
Garvan
MLC FP
MLC PCS
National Personal
National Private
National Business l Services
John Nolan & Associates
Plum
Thr
eeS
ixty
AdvantEdgeMLC
Insurance
Mas
terK
ey
Fle
xiP
lan
SME
Corporate
Per
sona
lB
usin
ess
Retail
Premium
Private
MLC
IC
P
lum
10
Liquidity Management
Estate Mgmt./Insurance
GeneralLife / Risk
HealthTrusts
Cards, Cheque Cash hub
Customer Financial Portfolio
Debt Management
PersonalHome
InvestmentBusiness
Investment Portfolio
Three key elements;- tax structure- assets- management 25 40
AGE
Per
son
al W
ealt
h
Wealth Accumulation Wealth Consumption
Financial Lifecycle of Customer
Death
The holy Grail…a customer centric business model delivering holistic financial solutions over a customer’s life-time.
Securityselection
AssetAllocation
Strategy(tax)
11
Wealth Accumulation Wealth Consumption
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90
AGE
PR
OF
IT I
N $
PE
R A
NN
UM
Bank Profits
Financial Services Profits
By age 45 over 50% of profit signature comes from non bank products
Risk Ins,
Personal Loan
General Ins
Home Loan
Margin Lending
Savings
Superannuation
Estate PlanningInvestments
Retirement Income
Trustee Services
Estate Administration
Profit for Average Premium Customer
Advice Continuum
….. delivering the opportunity to participate in the substantial profits derived from providing the full suite of services and life-time financial advice.
Assumptions•University Graduate•Married, two children in late 20s•Earning 3 x AWE at age 45•Purchases 3 mortgages during
lifetime, super and insurance•Retires at age 55 with annuity
12
OfferFinancial practice Comprehensive financial advice, practice management, client administration services, business systems and advisory tools
1980 1985 1995 2000
Financial advisers Product with advice to suit needs
Evolution of the Financial Planning Profession
Sole OperatorProduct only
13
Adviser Solutions(Platform/Product Philosophy
and Implementation)
Platforms Investment Risk Banking
IFA’s
MLCPCS40
MLCFP320
Apogee
276
GodfreyPembroke
175
Garvan
317
360IFA’s50
Premium346
PrivateXX
BusinessXX
Adviser Support Platforms
NationalInsuranceServices
35
MasterKey FlexiPlan
National Australia Financial Planning
Integrated Retail Distribution Model
ThreeSixty Advice Platform
Personal60
~ 5000
IndependentAligned Bank
346
14
Range of Integrated solutions provided
Low
High
LowDegree of advice High
Our portfolio of advice dealerships is the broadest in the Australian market, further enhanced by the recent Deutsche Financial Planning acquisition
Now includes Deutsche FP
15
Diversification of business sources is significant
0%
20%
40%
60%
80%
100%
Business Sources
Corporate
Bank Channel
Independent IFA's
Aligned IFA's
Total New Business Sales
16
National have successfully met the lending needs of our SME customers. The opportunity is to extend our wealth management capabilities to this segment.
TIME/BUSINESS LIFE CYCLE
• business planning and advice for new businesses
• long term business planning
• technology solutions
• business planning and
advice• innovative funding
(risk management)• technology solutions• wealth management
• managing surplus to grow personal wealth
• technology solutions
• focus on preserving wealth for retirement
• succession/estate planning
• technology solutions
Start Up Growth Maturity Preservation and Transfer
Cy
cle
17
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Fin
an
cial
Se
rvic
es
Pro
fit
pa
.
The opportunity to capture additional revenue from our strength in business client relationships is significant
Start Up Growth Maturity Preservation and Transfer
Traditional Banking ProfitsOur core competency
Personal Needs of ProprietorsLimited success
Personal Needs of EmployeesLimited success
Succession advice and investment needsNo offering
Illustrative
18
Agenda
Wealth Management Business Portfolio Approach
Domestic Business Analysis
International Opportunities
Business Model Drivers
Summary
19
DistributionServicing
Principal Investment Advisory
AssetManagement
Custody/ Trading
Domestic 0-5 bps
Int’l 10-20 bps
Index 5-10 bps
Active 30 - 80 bps
0-10 bps 40-90 bps 30-100 bpsRevenue Pool (bps)
Margin Trend
Comments Scalable/portable segment, risk of competition from
international players
Strategic/Economic trends means we will continue to focus on the distribution and retailing end of the value chain in retail funds management...
Commoditisation favours scale (large
incumbents and global players)
Opportunities to expand down the value chain (eg. Frank Russell)
Bundling (platforms/ solutions) takes focus off pure
service
Fee for service trends enable intermediaries
to take more of the revenue pool
Ability toextract value All Channel
Retail Funds Management Value Chain
GrowStrategy Grow GrowNiche play or Managed
exit
Grow
Source:Proprietary Analysis
20
We are in a strong growth position in the retail investment platform market place with share of inflows exceeding current market share position….
Source: Assirt Market Share Report
Market Share of Annual Retail Inflows - Dec 2000
CBA/Colonial23%
National/MLC17%
BT14%
AMP11%
ANZ7%
IPAC5%
Westpac4%
Others19%
Retail Assets Under Management - Dec 2000
0
5
10
15
20
25
30
35
40
CBA/Colonial National/MLC AMP BT Westpac ANZ
$Bil
lio
ns
17%
15%12%
9%7%
5%
Discretionary Master Funds Under Administration - Dec 2000
0
2
4
6
8
10
12
14
16
AMP Asguard National/MLC Norw ich Westpac Colonial
$Bil
lio
n
24%
14% 14%11%
8% 6%
Discretionary Master Funds Annual Inflows - Dec 2000
AMP19%
Asguard12%
National/MLC29%
Norwich14%
Westpac7%
Colonial3%
Other16%
21
Life Insurance Value Chain
Source:KPMG Insurance Industry Survey 1999, Proprietary Analysis
Retailing and
Distribution
Retail Servicing
UnderwritingReinsuranceAssetManagement
Custody Trading
Share of Revenue Pool
3-5% 8-10% 20-25%5-7%45-50%10-12%
Market Attractiveness
Ability to Extract Value
MaintainOutsourceStrategy Grow GrowNiche play or Managed exit
Grow
Strategic/Economic trends means we will continue to focus on the distribution and retailing end of the value chain in life insurance...
22 Source: Rice Kachor - Risk Insurance includes Term, Trauma and Disability Insurance
We are in a strong growth position in the life insurance market due to disciplined underwriting and sustainability of pricing
Share of New Business Risk Insurance - Sept 2000
AXA-AC&L17%
CBA-Colonial13%AMP-GIO
11%Tow er-FAI
8%
ING Life7%
Other31%
National-MLC13%
-
50
100
150
200
250
300
350
400
AXA-AC&L CBA-Colonial National-MLC AMP-GIO Royal Sun
$Mil
lio
n
Risk Insurance Annual Inforce Premiums- Sept 2000
18%
14%12% 12%
10%
23 Source: Accenture Wealth Management Case Studies
Product Manufacturer
Implemented Consulting Model
Revenue Pool (bps)
Revenue Pool (bps)
Custody
CustodyAsset
ManagementPIA/
consulting
Sales/ Distribution/ Servicing
Asset Management
PIA/ consulting
Sales/ Distribution/ Servicing
0-3 30 5 30
0-3 25 10 30
Cost to Client
65-68 bps
65-68 bps
Wholesale Funds Management Value Chain
Strategic/Economic trends means we will continue to focus on the distribution and retailing end of the value chain in wholesale funds management...
24
Agenda
Wealth Management Business Portfolio Approach
Domestic Business Analysis
International Opportunities
Business Model Drivers
Summary
25
Multi-manager Asset Manager Capability
Unit Trust Pension SuperInsurance
Intermediary Support Services
Bank IFA WorkplaceDirect/
tiedAsset
Consultant
Brand
Retail InstitutionalCustomer
Advice /DistributionChannel
Offer
SME
Administration Platform
Investment Specialists
We have developed the international expansion hypotheses using the framework of a generic business model
Banking
26
The UK provides us with the most attractive near term opportunity
Life Market SizeCurrent & Growth
Retail Funds CurrentMarket Size & Growth
Growth Prospects
Market Maturity
Entry Barriers
Competition and Distribution
Political / Cultural Issues
Overall Rating
Evaluation Dimensions
UK EuropeNorth America
Large and growing market, but very mature and competitive which makes it difficult to add value particularly without existing footprint
Large market, which is still growing and developing in maturity. Existing Footprint helps although acquisitions may be expensive
Asia ex Japan South America
Small market with low growth prospects or a lack of political will to encourage the industry. Established US players makes it difficult to compete.
Japan
Large markets with attractive growth prospects. Political and cultural challenges in all markets. Distribution access is key.
Large market undergoing significant change, but cultural issues and competition present challenges which have limited foreign successes to date. Will need innovative entry strategy
Significant long term growth potential but difficult political and legal environments in some markets. Joint venture required in many markets. Existing Footprint helps
27
The UK wealth management business will be developed in a series of waves
Implementation Waves
Customers
Investment Choice
Channel
Technology
PremiumBusiness
High Value Retail
Multi-mgr (Limited)
Tied planner
E-enabled
BusinessPremium
Wide
Internal IFAs
Web-enabled
PrivatePremiumBusinessNon bank
Wider
Internal IFAsExternal IFAs
Web-enabled
Wide
Direct
Web-enabled
Execute Integrated financial solutions model
Funds supermarket
Branding
Transformation & Preparation
Transformation & Preparation BuildBuild EnhancementEnhancement ExtensionExtension
• Build the financial planning model & support
• Re-engineer Operations, investment infrastructure & marketing
• Obtain regulatory approvals
28
Agenda
Wealth Management Business Portfolio Approach
Domestic Business Analysis
International Opportunities
Business Model Drivers
Summary
29
Key Value Drivers Behind Operating Profit
MOSPROFIT
TOTAL
RETURN
MARK TO MARKETREVAL.
VALUE OF NEW BUSINESS
VALUE OF INFORCE BUSINESS
FEES
EXPENSES
ACQUISITION
MAINTENANCE
FUM/A
NET FUNDS FLOW
INVESTMENT EARNINGS
FUM/A
EXPENSES
LAPSES
MARGIN DISCOUNT RATE
SALES
MARGIN
SELLING EXPENSES
MULTIPLIER
PREMIUMS/DEPOSITS
CLAIMS/REDEMPTIONS
Strategy
Platform sale secures 100% of portfolio - not dependent on short term investment performance
Platform offering + intermediary support services provide tools to enable the ongoing delivery of the advice/service proposition
30
AFS only 3.4M Customers
Note: General Insurance counted as an AFS product in these numbers.AFS = Australian Financial Services NFM = National Funds Management
AFS/NFM Summary - All Customers
Providing our customers in Australia, NZ, GB & Ireland with wealth management product/solutions represents significant untapped potential. Exploiting this significant potential will need to draw on our multi-channel distribution capability.
GB/Ireland:4.4Mil customers with minimal cross-sell of wealth management products
NFM only90k Customers
AFS/NFM264k customers
31
Summary
We are differentiated by:
A focused strategy
A diverse portfolio of businesses - both in maturity and geographies
An very distinctive and exportable investment management capability
The most developed and diverse distribution model in Australia
Unique take to market of strategy via MLC MasterKey
Untapped bank client base potential, particularly in Australia and UK
32
Summary
Innovative plays in the areas of:
MLC MasterKey
On-line financial services via Your Prosperity
Corporate Superannuation via
Workplace distribution via AdvantEdge
We are differentiated by:
33
Summary
An ability to execute strategy evidenced by recent activity:
Integration design completed with implementation progressing well
Sale of County Investment Management
Launch of MLC Implemented Consulting
Purchase of asset consultant John A Nolan
Purchase of Deutsche Financial Planning and Portfolio Service
UK Investment service designed and under construction
Launch of innovative SME superannuation offer via MLC MasterKey
Business Super
We are differentiated by:
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