In the past few years, we’ve seen moves from big banks offloading their investment and insurance offerings.
ASB has sold the management of their workplace superannuation fund to Smartshares, which is the NZX’s investment unit. Earlier ASB also offloaded AEGIS, it’s custodial platform. Westpac Bank sold its New Zealand life insurance business to local insurer Fidelity Life for $400 million in July. We’ve seen KiwiBank sell retail investment business Hatch to FNZ in October, followed by the sale of their insurance division to NIB in November.
BNZ offloaded its insurance business to Partners Life in December 2020, while ANZ sold their insurance arm to Cigna Corporation in 2018.
Is this the return to old-fashioned banking, or a shift to something new entirely?
Some industry commentators point to the Australian Royal Commission of Enquiry into Banking and Insurance as the catalyst for these changes, given that major financial institutions with a vertically integrated models came under serious scrutiny. Others point to pressure from our Reserve Bank in terms of higher capital adequacy ratios.
‘Simplification’ seems to be the name of the game here, with several banks touting the idea that these sales would allow them to focus more on their core business.
Kiwi Wealth seems to be facing additional changes – rumours have been stirring for a while now that an ownership change is in the cards for the parent company, Kiwi Group Holdings.
"Kiwibank has been a strong asset for the Fund, providing us with direct exposure to New Zealand’s banking sector through its innovative personal and business lending services. We do not comment on our investment intentions so I cannot confirm or deny if we are looking to change our investment in Kiwi Group Holdings," a spokesman for the NZ Super Fund says.
NZ Post, the majority shareholder with a 53% share, has also expressed that they will continue to maintain their ownership unless advised otherwise by their shareholder (the Government). Officially, it’s still just a lot of smoke – but unofficially, there might be enough of a haze to suspect fire now.
A spokesperson for Kiwi Wealth says: "The media speculation is a bit unsettling but as our owner Kiwi Group Holdings said in response to recent media enquiries, there is nothing to announce in that regard. From our perspective, it’s business-as-usual and we remain 100% focused on our mission to provide great investment outcomes and ensure every Kiwi has the opportunity to enjoy a brighter future.” [i]
Overseas we can see similar activity – Wells Fargo Asset Management was sold to two private equity firms for US $2.1b in February 2021, making it one of the largest asset management deals in a decade.
“This transaction reflects Wells Fargo’s strategy to focus on businesses that serve our core consumer and corporate clients and will allow us to focus even more on growing our wealth and brokerage businesses,” said Barry Sommers, chief executive of Wells Fargo’s Wealth & Investment Management division.[ii]
Mark Bruno, managing director at Echelon Partners, called the deal “a clear continuation of the trend of mega-deals that are re-shaping the asset management industry.”
“The deals are driven by a mix of cost-cutting, the need to scale, a desire to consolidate managers and providers for investors – and a way to accelerate the development of more innovative investment products,” he added.[iii]
Dannevirke’s old Bank of New Zealand building - one of many old banking buildings around NZ (picture: realestate.co.nz)
Indeed, some are predicting 2022 as the year for “unprecedented” change in the banking industry, following customer-driven demands for more innovative (and digital) experiences.
"When we look back on 2022, we will see it as the moment when banking fundamentally changed, says Alex Trott, banking lead at Accenture A/NZ.
"There haven't been any significant changes to the New Zealand banking business model in decades, which meant that banks could be conservative and reactive and still perform well," he says.
Historically we may have held banks as infallible institutions, as something we can always trust and that will always be there. You need only drive through any regional town to see the legacy of old grand buildings with bank livery etched in stone still visible.
That may be true with your savings and everyday spending - but given that the banks are selling off superannuation, investment and insurance arms, it may not hold true in other areas. For example, if you put your money into a managed investment with a bank, and that bank no longer owns the investment scheme, then who is truly looking after your wealth? And do they have your best interests at heart? Some of the key tenets of the due diligence are no longer met.
This change in the banking financial services model does serve as a reminder that if you haven’t looked at your situation in a while – there’s no time like the present.
The infamous Saab convertible (picture: zecars.com)
Just as you would do your due diligence on a potential vehicle purchase, so you should with investments and service partners. Take for example a vehicle brand of the past like Saab. Famed for their Swedish design, but the ailing brand eventually went the way of the dodo. It pays to ensure that your service partner is there for the long term – is this an ancillary service for them, or is it core, part of their DNA. Whilst driving a retro car is unique, hunting down rare parts on eBay to keep it running isn’t what most folk signed up for....
Regardless of what your bank is doing, it’s always a good idea to have a firm grasp on your own situation and the options available to you. If you’re looking to get your financial house in order, the first step can be getting in touch with a trusted, independent fiduciary for a no-obligation chat.
· Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://www.interest.co.nz/banking/114317/ownership-shake-may-be-afoot-kiwibanks-parent-company-kiwi-group-holdings
[ii] https://newsroom.wf.com/English/news-releases/news-release-details/2021/Wells-Fargo-Enters-Agreement-with-GTCR-and-Reverence-Capital-Partners-to-Sell-Wells-Fargo-Asset-Management/default.aspx
[iii] https://www.investmentnews.com/wells-fargo-asset-management-sold-to-private-equity-for-2-1-billion-203092
