Australian wealth management: What will be in 2014 and beyond?
2013 has been a busy but exciting year for the Australian wealth management industry. Thankfully though, the year has also marked the home stretch in terms of the recent spate of regulatory change; super funds are gradually getting their MySuper licences approved, the first part of SuperStream (rollovers) was implemented and the first Fee Disclosure Statements rolled out on 1 July. Next year will be the litmus test as funds go online with SuperStream contributions and see if their solutions can handle the volumes.
We predict that 2014 will also signify the beginning of a new era for the industry – one of innovation.
Goodbye regulatory change (for now)
2014 will mark a shift away from a focus on regulatory change – for now – with the federal government stating that they will not be tinkering with the super system during their first term in office. Still, we can expect changes to the current backlog of legislation, especially around FoFA, with some reforms not going through and others being modified. The Treasury’s “Son of Wallis” scheduled for 2014 is likely to result in a range of recommendations across the financial system, but implementation is some years off (thank goodness!).
Innovation is back
So, real innovation is back on the cards. IT and business teams are starting to free up now that legislative update programs are under control and completing. Deloitte has speculated that wealth management will form one of the growth or ‘super-sectors’ in Australia’s economy, with the sector being the fourth largest globally in terms of AUM and with significant opportunity to export financial services into Asia.
The Asian “passporting” system will begin to take more prominence, with early members, including Australia, signing up this year at ASEAN in Bali. Like UCITS in Europe, this will ultimately allow easier access to capital in foreign markets for fund managers, but if the UCITS experience is anything to go by, maturity is many years away. It all kicks off in earnest in 2016, with significant support from the Australian government and industry bodies expected. So next year we can expect strategists to allocate more attention to how best to take advantage of these opportunities.
Competing in a consolidating industry
Back in Australia, wealth managers will start to focus on competition as the market consolidates. What will be the differentiator? Better service? Better prices? More control for members? All of the above? A recent Deloitte report predicts differentiators will be “performance, insurance, services, and brand” as the industry and retail funds battle it out for market share.
However, the introduction of MySuper will, by its very nature, mean that service and product innovation and breadth will be the key differentiators, and increased scale will be required to combat the inevitable margin compression.
In terms of product innovation, as the post retirement-population tips the scales, we will start to see more innovation in terms of retirement phase or income stream products – life cycle super products are already becoming more mainstream with the introduction of MySuper. The federal government has indicated that it will support this innovation through tax changes to improve the attractiveness of deferred annuities.
A new frontier for wealth management technology
With an eye on differentiation in a rapidly growing market, and unencumbered by regulatory change, wealth managers are going to look to technology to enhance competitiveness – in many cases this process is already underway.
Modernising and consolidating systems will unlock efficiencies, reduce costs, enable better product features, as well as improved customer service through advances in areas such as a single customer view (“customer centricity”).
Modern technology will also enable cost effective, increasing scale for wealth managers, through more flexible and nimble systems. Delivery, for example through technology lift-out, BPO and managed services, will allow massive growth and innovation without a proportionate increase in development and maintenance costs.
As systems modernise and product offerings are enhanced, we will see more uptake of tools that will allow increasingly engaged investors to take greater control of their investment options and self-service/self-direct. We will see more online services that will increase engagement and better meet the needs of the already-engaged.
The rise of SMSFs will continue
As the size of this engaged populace increases, the growth we have been seeing in SMSF will continue (although probably at a slower pace) and larger players will grapple with competing in this space. Will they offer alternatives to SMSFs through member directed investments? Or will they take an “if you can’t beat them, join them” stance and start to participate in self-managed super sector? As technology enables automation of the administration of SMSFs, the latter option will become viable and potentially attractive.
Industry and retail superannuation funds will both compete with SMSFs, and we will see more blurring of the product and service offerings between the sectors. We are already seeing the start of convergence between wealth and banking solutions, to produce offerings reminiscent of private banking HNW style products. Like the consumer banking sector, the wealth sector will also embrace “big data” and more sophisticated real time analytics to personalise the interaction with clients and increase retention, customer loyalty and the ability to effectively cross sell.
Welcome to the new era
The post-regulatory change era is going to be about competition and therefore innovation. Wealth managers will strive to come up with game changers in order to stay in the game. 2014 will be about ushering in a new age in terms of the shape of investors and their demands, of products and offerings, and ultimately the technology that makes it all possible. Now is the time to look beyond regulatory change and compliance towards competition, differentiation and trend-setting.