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Private Banking
in Australia.
Date: June 2010
Disclaimer
This publication has been prepared as a general overview of the Australian private banking indu...
Contents
Introduction

5

Private Wealth Globally

6

Private Wealth in the Asia-Pacific

8

Private Wealth in Australia
Nu...
Introduction
The private banking industry in Australia has benefited from almost 20 years of sustained economic
growth to b...
Private Wealth Globally
Managing the wealth of HNWIs is an increasingly important and lucrative part of the financial servi...
NUMBER OF HIGH NET WORTH INDIVIDUALS IN LEADING MARKETS
2003
(‘000s)

2004
(‘000s)

2005
(‘000s)

2006
(‘000s)

2007
(‘000...
Private Wealth in the
Asia-Pacific
The strong performance of the Asia-Pacific region in recent years has made it a focal poi...
HIGH NET WORTH INDIVIDUALS FINANCIAL WEALTH FORECAST, 2006-2013F BY REGION
US$48.5tn
1.0
1.9

50
US$40.7tn
US$37.2tn
24%
4...
Private Wealth in Australia
Number of High Net Worth Individuals
Australia’s private wealth market ranks among the largest...
Of particular note, growth in financial assets6 has followed this strong upward trend. Total financial assets held by
househ...
Superannuation and High Net Worth Individuals
The single most important driver behind the growth in Australia’s pool of fin...
ALLOCATION OF AUSTRALIAN HOUSEHOLD MAJOR FINANCIAL ASSETS (% SHARE)
70
Life Offices, Pension Funds and Unfunded Superannua...
Hedge funds, in particular, have attracted attention of Australian HNWIs. Unlike in many other markets, hedge fund
product...
Private Banking in Australia
A wide array of products and services are offered by private banks in Australia, reflecting th...
THE SCORPIO PARTNERSHIP GLOBAL TOP 10 WEALTH MANAGERS FOR TOTAL ASSETS UNDER MANAGEMENT
Year 2008
(US$ Billion)

Instituti...
Financial Planners, Advisors and Investment Managers
Financial planners, advisors and investment managers are a primary so...
The Top 20 family offices account for A$67.67 billion and are sitting on cash of approximately A$6.4 billion.21
The table b...
Regulatory Environment
Framework
Australia aspires to global best practice in its financial services regulatory framework. ...
Authorisation and Licensing
The laws applicable to private banking service providers operating in Australia vary according...
Useful Links
Regulators
Australian Prudential Regulation Authority

www.apra.gov.au

Australian Securities and Investments...
22

Private Banking in Australia
Australian Trade Commission
The Australian Trade Commission – Austrade – is the Australian Government’s trade and investme...
00

Private Banking in Australia
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Documento del Governo Australiano che illustra il mercato e l'andamento della nostra professione nella regione.

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Private Banking-in-Australia-publication

  1. 1. Private Banking in Australia.
  2. 2. Date: June 2010 Disclaimer This publication has been prepared as a general overview of the Australian private banking industry and does not constitute and is not intended to constitute financial product advice as defined under the Corporations Act 2001 (Cwth). Nothing in this document should be construed as a recommendation or statement of opinion intended to influence a person in making an investment decision. The information is made available on the strict understanding that the Australian Trade Commission (Austrade) is not providing professional advice. While all care has been taken in the preparation of this publication, Austrade expressly denies liability for any loss or damage of any nature (including but not limited to any errors or omissions) arising out of or connected with reliance on the contents of this publication. Any person relying on this publication does so entirely at their own risk. Austrade strongly recommends that the reader obtain independent professional advice prior to making any investment decision. Austrade’s role in the promotion of Australian trade includes facilitating engagement by Australian financial services exporters in markets outside Australia. Austrade is not a promoter of any financial services products or investments and does not provide investment advice. Austrade assumes no responsibility however so arising for any company, product or service mentioned in this document, nor for any materials provided in relation to such products, nor for any act or omission of any business connected with such products. Investors should always make their own enquiries as to whether an investment is appropriate for their needs and should consult an independent and licensed advisor. 02 02 Islamic Finance Private Banking in Australia
  3. 3. Contents Introduction 5 Private Wealth Globally 6 Private Wealth in the Asia-Pacific 8 Private Wealth in Australia Number of High Net Worth Individuals Wealth Creation in Australia Wealth Ranges of High Net Worth Australians Superannuation and High Net Worth Individuals The Increasing Sophistication of High Net Worth Individuals in Australia 10 10 10 11 12 13 Private Banking in Australia Participants in Australia’s Private Banking Industry Financial Planners, Advisors and Investment Managers Family Offices In Australia 15 15 17 17 Regulatory Environment Framework Authorisation and Licensing 19 19 20 Useful Links 21 Private Banking in Australia 03
  4. 4. Introduction The private banking industry in Australia has benefited from almost 20 years of sustained economic growth to become the third largest private wealth market in the Asia Pacific and the 11th largest in the world. Strategically, Australia offers a competitive regional location for providing wealth management services. Australia is distinguished by the strength and resilience of its economy, the size, depth and liquidity of its financial markets and the sophisticated and innovative nature of its funds management sector, underpinned by its mandatory retirement income policy. Australia is also strategically located in the Asia-Pacific region, which is predicted to surpass North America in terms of cumulative wealth by 2013. Despite its relatively small population, Australia’s pool of affluent individuals (with average wealth of US$2.94 million) is around 30 per cent bigger than those of Singapore and Hong Kong combined and 54 per cent larger than that of India. Australian high net worth individuals (HNWIs) are comparatively more sophisticated in their investment portfolios, knowledge and demands on their wealth advisors than their Asia Pacific counterparts – this offers both challenges and opportunities for private banking. The private banking industry in Australia offers a wide array of products and services and business models vary markedly in terms of targets, wealth thresholds and services offered. All of the major domestic banks have designated private banking services, as do a number of the regional banks. In addition, a number of foreign banks have established private banking services in Australia, recognising both the strength of the domestic market and the potential within the region. Australia also has strong and sophisticated financial planning and investment fund markets, as well as a growing family office sector. There is no precise definition for ‘private banking’. In this publication the term private banking is used in a broad sense in terms of wealth management needs of HNWIs, but more narrowly in terms of service providers. The publication looks primarily at banking institutions servicing HNWIs while still recognising the broader wealth management sector, including financial planners and fund managers. For ease of international comparisons, an individual with over US$1 million in investible assets is regarded as high net worth. That is not to say, however, that those with less than US$1 million will not have an appetite for private banking services. The expressions ‘private banking’ and ‘private wealth management’ are to be distinguished from the generic term ‘wealth management’ which includes services offered to the general public. Private Banking in Australia 05
  5. 5. Private Wealth Globally Managing the wealth of HNWIs is an increasingly important and lucrative part of the financial services sector. HNWI financial wealth is expected to increase to US$48.5 trillion by 2013, growing at a compound annual rate of 8.1 per cent. This growth will be driven by the recovery in asset prices as the global economy and financial system emerge from the downturn. North America and the Asia Pacific will continue to lead the growth in HNWI financial wealth according to Merrill Lynch Capgemini, World Wealth Report, 2009. Since 1996, the collective financial wealth of HNWIs almost doubled to reach US$32.8 trillion in 2008. Merrill Lynch Capgemini estimates that there are 8.6 million HNWIs worldwide, defined as those with holdings of more than US$1 million in investable assets. GLOBAL HIGH NET WORTH INDIVIDUALS 1996 TO 2008 42 14 36 12 30 10 Number of HNWIs (Million, RHS) 24 8 18 6 12 4 6 Million US$ Trillion Financial Wealth (US$ Trillion, LHS) 2 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 0 Sources: World Wealth Report 2006, World Wealth Report 2009; Austrade The largest markets for private wealth internationally are in the United States, Japan and Germany, with HNWIs of more than 4.6 million, accounting for 54 per cent of the world’s HNWI population in 2008. Australia, despite its small population, ranks 11th globally and third in the Asia-Pacific region. 06 Private Banking in Australia
  6. 6. NUMBER OF HIGH NET WORTH INDIVIDUALS IN LEADING MARKETS 2003 (‘000s) 2004 (‘000s) 2005 (‘000s) 2006 (‘000s) 2007 (‘000s) 117 134 146 161 169 129 10.3 USA 2,272 2,498 2,669 2,920 3,019 2,460 8.3 Japan 1,312 1,343 1,406 1,484 1,517 1,366 4.1 Germany 756 760 767 798 833 810 7.1 UK 383 418 448 485 491 362 -5.5 China 287 300 320 345 413 364 26.8 Canada 200 217 232 248 281 213 6.5 Australia 2008 (‘000s) Growth Rate % 2003 to 2008 Sources: Merrill Capgemini, Various Wealth Reports; Austrade Investment Trends Worldwide, HNWIs sought refuge in safer investments during the recent financial crisis, by lifting allocations to fixed income and cash-based investments to 50 per cent in 2008 from 44 per cent in 2007. At the same time, there was a trend towards home-region and domestic markets, although looking forward they are expected to selectively raise allocations to the Asia-Pacific and emerging markets. BREAKDOWN OF HIGH NET WORTH INDIVIDUALS FINANCIAL ASSETS, 2006-2010F (%) 100 10% 24% 75 9% 14% 17% 7% 7% 18% 15% Real Estate 21% 20% Cash/Deposits 14% 27% 50 Alternative Investments 30% 29% 21% Fixed Income 25 31% 33% 25% 28% Equities 0 2006 2007 2008 2010F Source: Capgemini/Merrill Lynch Wealth Management, World Wealth Report 2008, 24 June 2009, Media Presentation Private Banking in Australia 07
  7. 7. Private Wealth in the Asia-Pacific The strong performance of the Asia-Pacific region in recent years has made it a focal point for the private wealth management industry. By the end of 2008, the wealth of HNWIs in the region had grown to US$7.4 trillion and accounted for 23 per cent of the global total. It is forecast to expand at a rate of 12.8 per cent per annum to US$13.5 trillion by 2013.1 In the Asia-Pacific region, more HNWIs reside in Australia than any other economy ex-Japan and China. There are 129,000 Australians with over US$1 million in investable assets—more than twice the number in Singapore and nearly three times that of Hong Kong. China’s HNWI population surpassed that of the United Kingdom to become the fourth largest in the world in 2008 (364,000 HNWIs), after having exceeded France in 2007. China’s HNWI population fell approximately 11.8 per cent in 2008, but was able to avoid some of the steeper losses seen elsewhere in the region, in part because of the relative strength of its economy. Hong Kong’s HNWIs appear to have been the hardest hit in percentage terms from the recent financial crisis, with a 61 per cent drop in the number of HNWIs over the year to 2008. This is largely due to its particularly high market-capitalisationto-nominal-GDP ratio of 6.2, which makes Hong Kong particularly vulnerable to large market capitalisation losses, as was experienced in 2008. In addition, Hong Kong has a high proportion of HNWIs in the lower US$1 million to US$5 million band, many of whom fell below the US$1 million threshold for 2008.2 NUMBER OF HIGH NET WORTH INDIVIDUALS IN THE ASIA PACIFIC (EX JAPAN) BY COUNTRY, 2008 (‘000s) 400 364 350 Japan 1,366 300 250 200 150 129 105 100 84 61 58 50 42 37 19 0 China Australia South Korea India Singapore Taiwan Thailand Hong Kong Indonesia Source: Merrill Lynch Capgemini, Asia Pacific Wealth Report, 2009 The region is predicted to surpass North America by 2013 with a collective financial wealth of US$13.5 trillion, accounting for 28 per cent of the world’s total (US$48.5 trillion).3 This represents a compound annual growth rate of 12.8 per cent for the region between 2008 and 2013, which is almost double the projected growth rate of 7 per cent for North America and 6.5 per cent for Europe. 1 2 3 08 Merrill Lynch Capgemini, World Wealth Report, 2009 . Ibid. Ibid. Private Banking in Australia
  8. 8. HIGH NET WORTH INDIVIDUALS FINANCIAL WEALTH FORECAST, 2006-2013F BY REGION US$48.5tn 1.0 1.9 50 US$40.7tn US$37.2tn 24% 40 0.9 1.4 1.0 1.7 6.2 5.1 9.5 30 Global HNWIs Wealth (in US$ Trillion) 20 Africa 4.1% Middle East 5.7% 7.6 Latin America 6.8% US$32.8tn 0.8 1.4 13.5 Asia-Pacific 12.8% 5.8 8.4 10.1 10.7* 7.4 11.4 Europe 6.5% 8.3 10 Annual Growth Rate 2008-2013F 11.3 At 8.1% Global CAGR 25% 11.7 12.7 9.1 North America 7.0% 0 2006 2007 2008 2013 *The 2007 number for Europe was revised from 10.6 to 10.7 Source: Capgemini/Merrill Lynch Wealth Management, World Wealth Report 2008, p.6. Private Banking in Australia 09
  9. 9. Private Wealth in Australia Number of High Net Worth Individuals Australia’s private wealth market ranks among the largest and fastest growing in the world. Despite its relatively small population, Australia’s private wealth market was the 11th largest in the world in 2008 and third largest in the Asia-Pacific region, according to the Merrill Lynch Capgemini, World Wealth Report 2009. The growth rate of HNWIs in Australia has surpassed many of the world’s most affluent nations including the United States, the United Kingdom and Japan. Through the GFC the HNWI population in Australia shrank 23 per cent to 129,200, with combined financial wealth of US$380 billion.4 Australia’s pool of affluent individuals (with average wealth of US$2.94 million) is around 30 per cent bigger than those of Singapore (61,000) and Hong Kong (37,000) combined, 54 per cent larger than that of India (84,000) and more than one third of China’s total HNWIs (364,000). Wealth Creation in Australia The national wealth of Australians has been considerably bolstered by almost 20 years of solid economic growth, with sustained rises in equities and property markets. Since 1991, Australia’s total private sector wealth (including consumer durables and dwellings) grew by over 8 per cent per annum to almost A$6 trillion.5 Private wealth per household increased from A$234,000 in 1991 to almost A$700,000 in 2009 (a compound annual growth rate of more than 6 per cent). This near trebling in wealth in the last two decades reflects growth in almost all asset classes. PRIVATE WEALTH PER HOUSEHOLD IN AUSTRALIA ($’000)1 800 725 726 700 697 645 600 587 553 493 500 459 421 400 300 234 242 250 265 277 288 310 332 359 389 200 100 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1. Private wealth is defined as the sum of household dwellings, household consumer durables (including market values of motor vehicles, furnishings and other household equipment), and household and unincorporated enterprises’ financial assets (including deposits, assets of life offices, superannuation funds and friendly societies, shares and other equity, unfunded superannuation claims and all other). Sources: Reserve Bank of Australia, Statistical Table B20;.various reports of Australian Bureau of Statistics, cat no. 3101.0, Australian Demographic Statistics; Austrade – data was calculated by Austrade’s Financial Services Team Research 4 5 10 Merrill Lynch Capgemini, World Wealth Report, 2009. Private wealth is defined as the sum of household dwellings, household consumer durables (including market values of motor vehicles, furnishings and other household equipment), and household and unincorporated enterprises’ financial assets (including deposits, assets of life offices, superannuation funds and friendly societies, shares and other equity, unfunded superannuation claims and all other). Data sourced from Reserve Bank of Australia, Statistical Table B20. Private Banking in Australia
  10. 10. Of particular note, growth in financial assets6 has followed this strong upward trend. Total financial assets held by households have quadrupled since 1991 and more than doubled since 1999. In the last two decades, financial assets increased at an annual compounded rate of 8.6 per cent, growing from A$429 billion in 1988 to more than A$2.4 trillion in 2009. Sustained increases in financial assets held, coupled with growing financial awareness, has generated strong demand from households for innovative and tailored financial products and services. AUSTRALIAN HOUSEHOLD FINANCIAL ASSETS1 (A$ MILLION) 2,800 Compound Annual Growth Rate = 8.6% per annum 1988 and 2009 2,400 2,000 1,600 1,200 800 400 0 Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec88 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1. Including unincorporated enterprises. Sources: Reserve Bank of Australia, Statistical Table B20,Selected Assets and Liabilities of the Private Non-Financial Sectors; Austrade Wealth Ranges of High Net Worth Australians The Australian Bureau of Statistics produces another measure of private wealth which includes property assets. Using this measure, of the 7.9 million households in Australia, one in eight (1.05 million or 13 per cent) had a net worth7 in excess of A$1 million dollars in 2005-06 (the last year such statistics were published). The majority of the wealthiest households have a net worth of between A$1 million to A$2 million. However there were still a significant number of people in higher net worth ranges with over 23,000 Australians having a net worth in excess of A$7 million. HOUSEHOLDS BY NET WORTH RANGE 2005 TO 2006 (A$) Net worth range Number of Households (‘000) Percentage of All Households $1,000,000 to less than $2,000,000 752.5 9.5 $2,000,000 to less than $3,000,000 169.6 2.1 $3,000,000 to less than $4,000,000 56.3 0.7 $4,000,000 to less than $5,000,000 26.7 0.3 $5,000,000 to less than $7,000,000 19.2 0.2 More than $7,000,000* 7.4 0.1* More than $10,000,000* 16.2 0.2* * Estimate has a relative standard error of 25% to 50% Sources: Australian Bureau of Statistics, cat. No. 6554.0, Household Wealth and Wealth Distribution, 2005-06; Austrade 6 The term ‘financial assets’ refers to classes of assets such as deposits, reserves of life offices and pension assets, shares and other equities. 7 Household wealth measures the extent to which the value of household assets exceed the value of household liabilities. Private Banking in Australia 11
  11. 11. Superannuation and High Net Worth Individuals The single most important driver behind the growth in Australia’s pool of financial assets has been Australian pension funds (referred to locally as ‘superannuation’ or ‘super’ funds). Since the introduction of the government-mandated superannuation scheme in 1992, assets in superannuation have experienced sustained and strong growth to become the largest financial assets held by households. In the past decade, superannuation has posted a compound annual growth rate of around 10 per cent, increasing from A$411 billion to A$1.1 trillion by the end of financial year 2008-09.8 Australia’s superannuation assets are expected to top A$2 trillion by 2014, A$3 trillion by 2019 and A$7 trillion by 2028 according to a Deloitte March 2009 report, the Dynamics of the Australian Superannuation System: the next 20 years 20092028. Note that these figures do not reflect changes to the superannuation guarantee scheme announced in May 2010 that are projected to add approximately A$500 billion to the pool of superannuation savings.9 Superannuation in Australia Superannuation is the term used in Australia to describe the setting aside of income for retirement, generally known internationally as pension or retirement products. Australia’s current ‘superannuation guarantee’ system was introduced in July 1992, requiring all employers to make taxdeductible superannuation contributions on behalf of their employees. The guarantee commenced with an employer contribution rate of 3 per cent of salary,10 with increases phased-in over a tenyear period to the current minimum rate of 9 per cent. In May 2010, the Government announced a number of changes to eligible contributions to the scheme including: • a progressive increase in the required rate of superannuation guarantee contributions from 9 per cent to 12 per cent by 2019-20; • a new low income earners Government contribution; • concessional superannuation contribution caps for those nearing retirement – from 1 July 2012; and • raising the superannuation guarantee age limit from 70 to 75 – from 1 July 2013.11 In aggregate, the measures are projected to add around A$500 billion to the existing pool of superannuation savings, and contribute to further increasing national savings by around 0.4 per cent of GDP by 2035.12 Employers and individual employees can also make voluntary contributions to their superannuation. These contributions are subject to income tax concessions, up to certain limits. More information on the superannuation guarantee is available through the Australian Tax Office website at www.ato.gov.au. Australia’s comprehensive retirement incomes scheme and the growth in self managed retirement funds has seen ‘superannuation coverage’ increase from around 51 per cent of the population in 1989 to almost 60 per cent in 2009. These savings vehicles have given the vast bulk of working Australians exposure to equities, fixed income and other asset classes. High net worth and affluent Australians have shown a propensity to take responsibility for asset allocation decisions through the establishment of self-managed superannuation funds. Australia has around 416,000 self-managed pension funds worth a combined A$384 billion.13 These ‘mini pension funds’, each controlling around A$950,000 on average, are typically established by ‘mass affluent’ individuals as their private pension fund, where they take responsibility for asset allocation decisions (typically drawing on the advice of professional financial planners). 8 Australian Prudential Regulation Authority, Annual Superannuation Bulletin, June 2009 (released 10 February 2010), Table 7. 9 Australian Government Fact Sheet: Superannuation — increasing the superannuation guarantee rate to 12 per cent, 2 May 2010, http://www.futuretax.gov.au/ documents/attachments/6_Fact_Sheet_SG%20_rate_increase.pdf 10 4 per cent for employers with annual payroll greater than A$1 million. 11 Joint Media Release - Treasurer The Hon Wayne Swan MP and Minister for Superannuation The Hon Chris Bowen MP, STRONGER FAIRER SIMPLER - Superannuation banking the benefits of the boom, 2 May 2010. 12 Australian Government Fact Sheet: Superannuation — increasing the superannuation guarantee rate to 12 per cent, 2 May 2010, http://www.futuretax.gov.au/ documents/attachments/6_Fact_Sheet_SG%20_rate_increase.pdf 13 Australian Prudential Regulation Authority, Quarterly Superannuation Performance, December 2009 (released 11 March 2010). 12 Private Banking in Australia
  12. 12. ALLOCATION OF AUSTRALIAN HOUSEHOLD MAJOR FINANCIAL ASSETS (% SHARE) 70 Life Offices, Pension Funds and Unfunded Superannuation 60 50 40 30 Currency, Deposits and Bonds 20 Shares and Other Equity 10 0 Dec88 Dec89 Dec90 Dec91 Dec92 Dec93 Dec94 Dec95 Dec96 Dec97 Dec98 Dec99 Dec00 Dec01 Dec02 Dec03 Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Sources: Australian Bureau of Statistics cat. no. 5232.0, Table 20, Australian National Accounts Financial Assets and Liabilities of Household; Austrade The Increasing Sophistication of High Net Worth Individuals in Australia The recent global financial crisis (GFC) saw Australian investors adopt a more defensive approach to their portfolios with an increase in allocations to currency, deposits and bonds and a decrease in shares and other equity holdings. This trend is expected to reverse as Australian equity markets return. 14 Proportion of HNW customers’ portfolio by investment type HIGH NET WORTH INVESTORS INVESTMENT PORTFOLIO – 2009 100 80 20% 16% Alternative Investments 17% 17% Real Estate 60 40 17% 17% Fixed Income 24% 26% Equities 20 20% 25% Cash or near cash 0 Australia Asia-Pacifc Average Source: DataMonitor Wealth Management in Australia 2009 (released August 2009)/DataMonitor Wealth Management Leaders Survey, page 15 Despite the recent shift in HNWI portfolios to adopt a more defensive stance during the GFC, Australian HNWIs remain less risk adverse than the Asia-Pacific average.15 Australia has one of the world’s highest percentages of individuals with direct and indirect exposures in the stock market. Approximately 6.7 million people (41 per cent of the adult Australian population) own shares, either directly or via managed investment funds. The level of direct ownership is estimated at 36 per cent of the adult population, the same percentage as Hong Kong’s population.16 According to a 2009 Datamonitor survey of 16 Australian wealth managers, equities remain the largest proportion of Australia HNWI portfolios, accounting for 26 per cent in 2009, which is five percentage points higher than any other asset class. Alternative asset classes accounted for 20 per cent of Australian HNWI portfolios in 2009, an increase of five percentage points over the previous year, and four points higher than the Asia-Pacific average of 16 per cent.17 14 Datamonitor, Wealth Management in Australia 2009.Conclusions are based on Datamonitor’s Wealth Market Leaders Survey 2009, conducted among 16 Australian wealth managers. The surveyed wealth managers look after 6.1% of all onshore HNW assets in the country. 15 Datamonitor, Wealth Management in Australia 2009, August 2009. 16 Australian Securities Exchange (ASX), 2008 Australian Share Ownership Study. http://www.asx.com.au/about/pdf/2008_australian_share_ownership_study.pdf. 17 Datamonitor, Wealth Management in Australia 2009, August 2009. Private Banking in Australia 13
  13. 13. Hedge funds, in particular, have attracted attention of Australian HNWIs. Unlike in many other markets, hedge fund products in Australia are regulated in the same way as other managed funds products, resulting in a greater interest in these products at the retail level. Australia’s largest hedge fund manager and largest fund of fund hedge fund manager, which combined account for A$20 billion in assets, source the majority of their allocations from HNWIs and affluent investors. Similarly, HNWIs have been early adoptors of responsible investment strategies. Responsible investment is an umbrella term that describes an investment process which takes environmental, social and governance (ESG) considerations into account. It is estimated that more than half of all funds under management in Australia are committed to operating according to the Principles for Responsible Investment. According to the Datamonitor survey, wealth management market leaders anticipate that equities and deposits will remain the most important asset classes for HNWIs, however there may be some decreased focus in particular asset classes such as real estate funds and commodities. HIGH NET WORTH INDIVIDUALS PORTFOLIO ALLOCATION BY PRODUCT AREA IN AUSTRALIA (% OF TOTAL ASSETS) Derivatives 2009 Commodities 2011 Capital-protected funds or bonds Private equity funds Hedge funds Closed-ended real-estate funds Open-ended real-estate funds Corporate bonds Government bonds Money market funds Deposits and savings Equities 0 5 10 15 20 25 Sources: Datamonitor Wealth Management in Australia 2009 (released August 2009)/Datamonitor Wealth Market Leaders Survey, 2009, p.18; Austrade Australian HNWIs are also more demanding of their wealth managers, due to their superior knowledge of investments and higher percentage allocations to equities, than their Asia- Pacific counterparts, and are more open to new investment ideas. They place more importance on personal relationships and are less likely than the regional average to switch wealth managers. They tend to require more face-to-face time with their relationship managers, a higher level of service and are more proactive and involved in managing their money.18 The recent financial crisis has driven Australians to seek more information on their investments and place greater importance on the financial strength of their wealth manager. While Australian investors continue to have a relatively high proportion of equity and more sophisticated alternative assets, according to the Datamonitor survey they are also increasingly looking for simple, transparent investments and demand that their advisors have an advanced understanding of investment products.19 18 Datamonitor, Wealth Management in Australia 2009, August 2009. 19 Ibid. 14 Private Banking in Australia
  14. 14. Private Banking in Australia A wide array of products and services are offered by private banks in Australia, reflecting the diversity of the market. Business models also vary markedly in respect of target markets, wealth thresholds, and investment opportunities. Essentially, private banks range from ‘one stop shops’ to pure advisory services and organisations providing quasi-institutional investment opportunities. Private banks also differ widely in terms of their client service ratio. While some follow models where more than 150 clients are serviced by the one relationship manager, others have client/relationship manager ratios lower than 30 to 1. Most private banks offer similar core products. These include investment advisory services; risk management provisions including advice on insurance and wealth protection; superannuation and retirement planning; taxation advice; estate planning; succession planning; gearing solutions and general banking products and services. Other services available within the private banking space include philanthropic services and art banking. Participants in Australia’s Private Banking Industry Private banking services are provided by all of the major domestic banks in Australia, as well as a number of the smaller regional banks. The table below provides a ranking of the largest domestic banks in Australia, based on total resident assets, along with an indication of whether they offer private banking services. AUSTRALIA’S LARGEST DOMESTIC BANKING INSTITUTIONS (MARCH 2010) Total resident assets ($ Million) Private Banking Services* Westpac Banking Corporation# 511,817 Yes Commonwealth Bank of Australia 490,475 Yes National Australia Bank Limited 381,903 Yes Australia and New Zealand Banking Group Limited 342,849 Yes Suncorp-Metway Limited 70,786 No Bank of Western Australia Ltd 69,862 Yes Macquarie Bank Limited 52,560 Yes Bendigo and Adelaide Bank Limited 40,943 Yes Bank of Queensland Limited 31,623 Yes 7,699 Yes AMP Bank * Based on internet research and calls to institutions. # Westpac statistics include assets of St George Bank. Sources: APRA, Monthly Banking Statistics, March 2010 (issued April 2010); Austrade In addition, many foreign banks have recognised the opportunities presented by the size and sophistication of Australia’s HNWI market and have established private banking practices in the country. Looking at the largest global private wealth managers, six of the top 10 are offering private banking services in Australia. Private Banking in Australia 15
  15. 15. THE SCORPIO PARTNERSHIP GLOBAL TOP 10 WEALTH MANAGERS FOR TOTAL ASSETS UNDER MANAGEMENT Year 2008 (US$ Billion) Institution Private Banking Facilities in Australia1 1 Bank of America/Merrill Lynch 1,501 Yes 2 UBS 1,393 Yes 3 Citi 1,320 Yes 4 Wells Fargo2 1,000 No 5 Credit Suisse 612 Yes 6 JPMorgan 552 No 7 Morgan Stanley 522 Yes 8 HSBC 352 Yes 9 Deutsche Bank 231 Yes 10 Goldman Sachs3 215 No 1. Information obtained directly from organisation involved 2. On the date of the report publication, Wells Fargo integration of Wachovia is ongoing and this figure may yet be revised as the firm restructures its retirement services operations. 3. In 2009, Goldman Sachs JBWere sold 80.1 per cent stake in its private client stockbroking business to National Australia Bank. Sources: Scorpio Partnership, Private Banking KPI Benchmark, 2009, Figure 1 (released 6 July 2009); Austrade A 2010 Euromoney survey ranked the private banking services in Australia based on a survey of private banks themselves who were asked to identify the companies they admire as the top providers of both competitive and non-competitive services. According to this survey, the institution with the best overall banking services for 2010 was Macquarie, followed by Commonwealth Bank and Credit Suisse. The best local bank was National Australia Bank and the best foreign bank was Credit Suisse. EUROMONEY PRIVATE BANKING SURVEY – AUSTRALIA 2010 Criteria 2009 Institution 1 1 Macquarie 2 9 Commonwealth Bank 3 2 Credit Suisse 4 8 National Australia Bank 5 7 Westpac Best Local Bank 1 3 National Australia Bank Best Foreign Bank 1 Credit Suisse Super Affluent 1 Commonwealth Bank High Net Worth I 1 Commonwealth Bank High Net Worth II 1 1 Macquarie Ultra High Net Worth 1 3 UBS Relationship Management 1 1 Macquarie Privacy and Security 1 1 Credit Suisse Range of Investment Products 1 1 Macquarie Family Office Services 1 Best Private Banking Services 2010 Net Worth Specific Services Commonwealth Bank Sources: Euromoney Private Banking Survey, February 2010; Austrade 16 Private Banking in Australia
  16. 16. Financial Planners, Advisors and Investment Managers Financial planners, advisors and investment managers are a primary source of wealth management services in Australia. Some are part of banking institutions, while others may be considered competitors and/or sources of potential customers for private banking institutions. It is estimated that there are some 2,500 financial planning/advisor licensees in Australia (i.e., Australian financial service license (AFSL) holders who are engaged in financial planning or advisory). Financial planners are generally the front line in wealth management in Australia and may be employees of banking institutions or fund managers, or operate on an independent basis. Investment or fund managers may also provide services directly to HNWIs through various retail channels and platforms. There are an estimated 131 investment management firms operating in Australia, many of which are also banking institutions. This excludes sales offices of offshore-based investment mangers and smaller boutique or hedge fund managers. The top 30 investment management firms control more than 85 per cent of the industry’s funds under management. Family Offices in Australia The top 250 family offices in Australia accounted for approximately A$181 billion as at May 2010, with the largest 20 accounting for A$67.7 billion.20 The range is from A$200 million to A$7.17 billion. There are a significant number of smaller families in the A$30 million to A$200 million range that do not have the economies of scale to establish stand alone family offices. These families typically either use multi-family offices such as the Myer Family Office, (which represents 50 families apart from the Myer Family), or other service providers to provide the outsourced services. This sector is a significant user of private banking, accounting, taxation and investment management services. An Australian family office is generally a private company that manages investments and trusts for a wealthy family and their extended members. Most family offices are relatively new in Australia, and have often only been created by the first generation in the last 10 to 20 years. There are some older families such as the Fairfax, Albert and Myer families where fifth, sixth and seventh generations are beneficiaries of the family office structure. The traditional family office will provide a range of services from personal services (managing household staff) to property management, philanthropy coordination, legal and tax services, and financial and investment services. A family office will typically have an investment team that manages the assets for a number of beneficiaries. This service may be provided within the office or through the private banking or advisory services of a financial institution. The multi-family office model is still young in Australia, however there seems to be a great deal of opportunity as a number of the ‘new’ wealth groups look to the experience of other families. On this theme, a number of families are co-investing and sharing due diligence on transactions. Australia’s family office sector can be broken into four parts: 1. Top 50 2. Top 100 3. > A$200 million 4. < A$200 million Family Office Sector Total Assets A$ Billion Cash A$ Billion Top 50 $103.34 $10.85 Top 100 $134.96 $13.69 Top 250 $181.24 $16.45 Source: Family Office Connect, 2010 20 Family Office Connect (www.foconnect.com.au), 2010; BRW Rich List 200, 27 May 2010. Private Banking in Australia 17
  17. 17. The Top 20 family offices account for A$67.67 billion and are sitting on cash of approximately A$6.4 billion.21 The table below shows the Top 20 families with some single family offices combined under the main family name for this report. TOP 20 FAMILY OFFICES Rank Family Office Core Investments Total Assets1 1 Smorgon Group Diversified $7,170 2 Lowy Property $5,040 3 Rinehart Mining $4,750 4 Thorney (Pratt) Diversified $4,600 5 Andrew Forrest Mining $4,240 6 Triguboff Property $4,200 7 Packer Gaming/media $4,100 8 Clive Palmer Mining $3,920 9 Liberman Family Diversified $3,900 10 Gandel Property $3,030 11 Chris Wallin Mining $2,590 12 Alter Property $2,400 13 Terrace Tower Group (Saunders) Property $2,400 14 Kerr Neilson Financial Services $2,330 15 Australian Capital Equity (Stokes) Media/Diversified $2,290 16 Besen Diversified/Retail $2,267 17 Len Buckeridge Building Materials $2,240 18 Portland House (Hains) Diversified $2,150 19 Bennett/Wright Mining $2,090 20 Lang Walker Property Comments $1,970 There are eight branches each with a family office There are three branches each with a family office. 1. Based on either BRW Rich List 200 or Family Office Connect, May 2010 Source: Family Office Connect, 2010 Investments The family offices within the Top 100 hold over A$13.6 billion in cash. This is a conservative estimate and may well exceed A$20 billion. The typical office has a chief investment officer and investment managers/analysts. This team will report to a board consisting of the principal representatives, independents and executives. Corporate governance has been a focus of many of the larger families and the requirement to have some independent advisory board members. Many of the Top 100 families have generated their wealth from real estate/property so are keen to diversify into equities, hedge funds, fixed income and other alternative investments. The mining wealth families will seek real estate, fixed income and alternatives. 21 Family Office Connect, 2010. 18 Private Banking in Australia
  18. 18. Regulatory Environment Framework Australia aspires to global best practice in its financial services regulatory framework. This objective was an important motivation for the significant structural changes to the regulatory arrangements enacted since 1997. These changes have cemented the reputation of Australia’s financial services industry as being one of the most efficiently regulated in the world. Supervision of the sector is organised along functional rather than institutional lines, with oversight effected by statutory bodies with operational independence from the Government. TREASURER Reserve Bank of Australia (RBA) Australian Prudential Regulation Authority (APRA) Australian Securities and Investments Commission (ASIC) Payment Systems Board ■ Monetary Policy ■ Prudential regulation of: ■ Systemic stability – Deposit-taking institutions – Life and general insurance – Superannuation funds ■ Payments systems regulation ■ Market integrity ■ Consumer protection ■ Corporations COUNCIL OF FINANCIAL REGULATORS Note: Membership of the Council of Financial Regulators also includes the Commonwealth Treasury. Source: KPMG 1998 Financial Institutions Performance Survey Other regulators that directly impact the private banking industry include: • the Australian Transactions Reports and Analysis Centre (AUSTRAC) – responsible for administering Australia’s anti-money laundering and counter-terrorism financing laws; and • the Australian Tax office (ATO) – responsible for administration of Australia’s taxation legislation and the principal revenue collection agency. Private Banking in Australia 19
  19. 19. Authorisation and Licensing The laws applicable to private banking service providers operating in Australia vary according to the type of activities conducted and the organisational structure under which business is conducted. APRA Authorisation If the institution is considered a bank in accordance with the Banking Act (1959) it will generally be required to be authorised by the Australian Prudential Regulatory Authority (APRA). A banking business is known broadly in the legislative framework as the ‘taking of money on deposit and making advances of money’. In addition, there are specific restrictions under the section 66 of the Banking Act on the use of the term ‘bank’. Institutions granted authorities to carry on banking businesses in Australia are referred to as authorised deposit-taking institutions (ADIs). If any part of an organisation’s business relates to banking, authorisation must be received from APRA. A foreign corporation conducting a banking business outside Australia, but offering financial services and products in Australia, must also obtain a banking authority issued by APRA. APRA authorisation brings with it a number of reporting, risk management, capital and prudential management requirements. More information on the APRA authorisation process is available at www.apra.gov.au. Australian Financial Services License Any organisation providing financial services as defined in the Corporations Act 2001 is required to hold an Australian financial services licence (AFSL) issued by the Australian Securities & Investment Commission (ASIC). A financial service constitutes: • providing financial product advice • dealing in a financial product • making a market for a financial product • operating a registered scheme • providing a custodial or depository service. The financial service must be provided in relation to a financial product and a financial service provider may hold a single licence for provision of multiple services. More information about licensing and registration process is available at www.asic.gov.au. 20 Private Banking in Australia
  20. 20. Useful Links Regulators Australian Prudential Regulation Authority www.apra.gov.au Australian Securities and Investments Commission www.asic.gov.au Reserve Bank of Australia www.rba.gov.au Australian Government Austrade www.austrade.gov.au Australian Bureau of Statistics www.abs.gov.au Australian Taxation Office www.ato.gov.au Australian Transaction Reports and Analysis Centre www.austrac.gov.au Commonwealth Treasury www.treasury.gov.au Fido www.fido.asic.gov.au Future Fund www.futurefund.gov.au Other Alternative Investment Management Association www.aima-australia.org.au Association of Superannuation Funds of Australia www.superannuation.asn.au Australian Accounting Standards Board Australian Bankers Association Australian Financial Markets Association www.aasb.com.au www.bankers.asn.au www.afma.com.au Australian Institute of Superannuation Trustees www.aist.asn.au Australian Securities Exchange www.asx.com.au Australian Private Equity & Venture Capital Association Family Office Connect www.avcal.com.au www.foconnect.com.au Financial Planning Association www.fpa.asn.au Financial Services Institute of Australasia www.finsia.com Funds Executives Association Ltd www.feal.asn.au Investment and Financial Services Association www.ifsa.com.au Responsible Investment Association Australasia Private Banking in Australia www.responsibleinvestment.org 21
  21. 21. 22 Private Banking in Australia
  22. 22. Australian Trade Commission The Australian Trade Commission – Austrade – is the Australian Government’s trade and investment development agency. With an extensive global network of offices covering more than 100 locations in over 55 countries, Austrade assists Australian businesses to succeed in trade and investment internationally, and attracts productive foreign investment into Australia. Austrade operates at a number of levels: national, industry and business. At the national level, Austrade shares global commercial insights with other areas of government. At the industry level, Austrade works closely with businesses and governments to build Australian expertise. And at the individual enterprise level, Austrade delivers services, programs and initiatives to help Australian businesses and attract foreign investment. In addition, Austrade helps Australian exporters with a comprehensive range of exporter services and administers the Export Market Development Grants (EMDG) scheme; provides international investors with key industry and government contacts; and assists international buyers in locating and identifying the right Australian suppliers. For further information To learn more about what we can do to help you or to contact an investment specialist, call 13 28 78 (in Australia), email invest@austrade.gov.au or visit www.austrade.gov.au/f inancialservices
  23. 23. 00 Private Banking in Australia

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