Australia’s Big Banks Compete In A Land Grab For The Next Big Cash Cow …

Forget the stock market, corporate mergers, lending or the property market, the next profit cow for banks is superannuation. Banks know this and have dived into a feeding frenzy for market share in the super assets industry.

Brad Cooper, the boss of Westpac’s wealth management arm, BT Financial Group, was quoted in an article to The Sydney Morning Herald on June 21st saying that the management of super assets in the next 20 years will be to banks what mortgage shares was in the past 20 years.

According to Brad Cooper and other finance analysts, the unprecedented profits generated by property owners and banks in the last two decades will suffer as younger workers feel priced out of the housing market and no longer view bricks and mortar as the fail-proof investment their parents raved about. Superannuation, on the other hand, is viewed as a smart, tax-efficient method of saving for retirement.

It is not only young workers who are ripe for the picking. Banks looking for investors are also honing their marketing campaigns on baby boomers who have finished paying their mortgages and are interested in shoring up their retirement funds while they still have an income. If recent figures are anything to go by, baby boomers are going to be an easy sale. According to a report by the Wall Street Journal on The Australian, Boomers have hoarded over $22 billion dollars into their super funds over the past financial year. Why the rush? People who were over 50 were eager to make the most of the $50,000 in concessional contributions allowed by the Australian Taxation Office before the current $25,000 cap was implemented.

However, the management of super assets is not just a consequence of a bad housing market and a government subsidy. It is big business and it is here to stay. According to the BT Financial Group, the management of super assets accounts for $1 trillion now and will be worth more than $6 trillion by 2030. That is huge. It values Australian super assets as the third economic block in the world: between the GDP of China and the GDP of Japan, the second and third largest economies in the world.

One of the main engines behind this growth is the rise of compulsory employer superannuation contributions from 9% to 12%, as from 2013.

To tap into this huge reservoir of profit potential the big banks have invested heavily in fund management companies that specialise in the management of super assets. ANZ entered into a joint venture with uber asset management corporation ING. Westpac paid $1.2 billion for BT and Rothschild Son’s in an aggressive pincer movement to corner the Australian financial management market. The Commonwealth Bank was a pioneer in the financial management sector when it bought Colonial Group for $9 billion in 2000. NAB was only month behind when it also bought a leading financial management company: Lend Lease’s MLC, for $4.5 billion.

According to Chris Appleyard, chief financial adviser for Custom Wealth Solutions, the main sources of profits from super assets for banks are fees and the leveraging of customer assets. Appleyard recommends investors to take an active role into their super funds and choose a self-managed super fund. Although managing your own super fund does come with serious responsibilities and requires a significant investment in time and effort, with a little advice from a qualified financial adviser you can cut the middleman (i.e. big banks) and save yourself a small fortune in fees and commissions.

Custom Wealth Solutions is a leading financial planning firm in Australia, providing comprehensive and holistic financial advice to businesses and individuals in Brisbane, Sydney, Melbourne and the Gold Coast. They specialise in wealth management, insurance needs, superannuation including Self Managed Superannuation Funds, investment strategies, and lending solutions.

If you wish to speak to a Custom Wealth Solutions financial adviser regarding your financial needs, you may call them at 1300 001 297 or you may visit their website

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Monday, July 30th, 2012 EN

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