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Wealth Management Strategy Discussion Garry Mulcahy

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  • A soft copy of today’s presentations will be available in the Shareholder Centre of our web site by lunch time today. I would ask that you check to ensure your mobile phone is turned off. Finally, please make yourself comfortable and enjoy the day. I would now like to move to our first presentation and patch in Jacksonville, Florida . Are you there Kevin?
  • Transcript

    • 1. Wealth Management Strategy Discussion Garry Mulcahy CEO Strategy and Marketing, Wealth Management 9 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
      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 Plum AdvantEdge Your Prosperity/NOLT Asia 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 MOS PROFIT TOTAL RETURN MARK TO MARKET REVALUATIONS 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) Asset Management 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 Custody Investor
      • 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 Servicing 1 Principal Investment Advisory Investment Management Execution and Processing Internal- NAM External Fund Managers NAG Custody Other External Customers Multi Manager Common Admin Platform Product Brand Consolidated ‘engine’ Sanford Hartley Poynton JB Were Interface to Banking Platform Specialist Alliances Desired future state Business focus Outsource 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 ThreeSixty AdvantEdge MLC Insurance SME Corporate Personal Business Retail Premium Private MasterKey FlexiPlan MLC IC Plum
    • 10. General Life / Risk Health Trusts Cards, Cheque Cash hub Customer Financial Portfolio Personal Home Investment Business Three key elements; - tax structure - assets - management 25 40 AGE Personal Wealth 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. Security selection Asset Allocation Strategy (tax) Liquidity Management Estate Mgmt./Insurance Debt Management Investment Portfolio
    • 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 PROFIT IN $ PER ANNUM 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 Planning Investments 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. Offer Financial 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 Operator Product only
    • 13. Adviser Solutions ( Platform/Product Philosophy and Implementation) Platforms Investment Risk Banking MLC PCS 40 MLC FP 320 Apogee 276 Godfrey Pembroke 175 Garvan 317 360 IFA’s 50 Premium 346 Private XX Business XX Adviser Support Platforms National Insurance Services 35 MasterKey National Australia Financial Planning Integrated Retail Distribution Model ThreeSixty Advice Platform Personal 60 ~ 5000 Independent 346 IFA’s FlexiPlan Aligned Bank
    • 14. Range of Integrated solutions provided Low High Low Degree 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 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 Cycle
    • 17. The opportunity to capture additional revenue from our strength in business client relationships is significant Start Up Growth Maturity Preservation and Transfer Traditional Banking Profits Our core competency Personal Needs of Proprietors Limited success Personal Needs of Employees Limited success Succession advice and investment needs No offering Illustrative
    • 18. Agenda Wealth Management Business Portfolio Approach Domestic Business Analysis International Opportunities Business Model Drivers Summary
    • 19. Distribution Servicing Principal Investment Advisory Asset Management 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 bps Revenue 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 to extract value All Channel Retail Funds Management Value Chain Grow Strategy Grow Grow Niche 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 17% 15% 12% 9% 7% 5% 24% 14% 14% 11% 8% 6%
    • 21. Life Insurance Value Chain Source: KPMG Insurance Industry Survey 1999, Proprietary Analysis Retailing and Distribution Retail Servicing Underwriting Reinsurance Asset Management Custody Trading Share of Revenue Pool 3-5% 8-10% 20-25% 5-7% 45-50% 10-12% Market Attractiveness Ability to Extract Value Maintain Outsource Strategy Grow Grow Niche 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 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 Custody Asset Management PIA/ 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 Super Insurance Intermediary Support Services Bank IFA Workplace Direct/ tied Asset Consultant Brand Retail Institutional Customer Advice / Distribution Channel 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 Size Current & Growth Retail Funds Current Market Size & Growth Growth Prospects Market Maturity Entry Barriers Competition and Distribution Political / Cultural Issues Overall Rating Evaluation Dimensions UK Europe North 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 Premium Business High Value Retail Multi-mgr (Limited) Tied planner E-enabled Business Premium Wide Internal IFAs Web-enabled Private Premium Business Non bank Wider Internal IFAs External IFAs Web-enabled Wide Direct Web-enabled Execute Integrated financial solutions model Funds supermarket Branding Transformation & Preparation Build Enhancement Extension
      • 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 MOS PROFIT TOTAL RETURN MARK TO MARKET REVAL. 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 only 90k Customers AFS/NFM 264k 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:
    • 34. So far as the law allows, National Australia Bank Limited ABN 12 004 044 937 ("the National") does not warrant or represent that this document (or the information set out or referred to in this document) is accurate, reliable, complete or contemporary. National expressly advises that, to the extent permitted by the law of Victoria, Australia, by which law use and all other matters relating to this document are governed, it disclaims all and any responsibility for and shall not be liable in any way whatsoever (whether in negligence or otherwise) for any loss or damage which may be suffered by any person relying upon this document (or the information or conclusions contained in this document). This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The National, its affiliates, and employees may hold a position or act as price maker in the financial instruments of any issuer discussed within this document or act as underwriter, placement agent, adviser or lender to such issuer. Past performance is not a guide to future performance and recipients should not rely upon the contents of this document but should make their own assessment and evaluation. (c) Copyright National Australia Bank Limited ABN 12 004 044 937 Disclaimer
    • 35. www.national.com.au