Banks' performance in managed funds the key

By Peter V O'Brien

Friday 5th October 2001

The rapid growth of bank-managed funds has been a feature of the managed funds industry, which includes many products directed at people saving for retirement, in recent years.

Total net retail funds under management increased 22.3% between December 1998 and the end of 2000 but the four overseas-owned banks and ASB Bank lifted their managed investment 50% in the period.

They went from $3.23 billion to $4.81 billion or from 22% of total retail funds under management in 1998 to 26.9% at the end of last year.

Comparisons between total products of the retail managed funds industry are a better measure of personal savings than attempts to strip out "pure" superannuation products, because individuals have different requirements and preferences in their attitudes to savings.

The managed funds industry is an imperfect measure of total retirement savings in the community.

There are many other superannuation schemes run on a wholesale basis through companies and other organisations, which engage professional managers to handle their affairs.

The banks' drive to increase their share of managed funds and other superannuation schemes was logical, given their financial clout and substantial staffs with investment expertise.

Banks have built-in advantage over many other organisations in money management.

While there are regular moans from customers about bank fees and a sometimes perceived lack of service, most New Zealanders from late teens (sometimes at younger ages) have an account with a retail bank and form a big potential market for any bank's marketing of managed funds.

It is obviously easier to direct aggressive marketing to an existing client base than to go into the highways and byways seeking new customers.

Only the life offices - often in association with their general insurance offshoots - have a similar "captive" client base but there is no New Zealand-based insurance company with the resources of the major banks, whether the international links of both types of organisation are included or excluded.

The trick for people saving for retirement or guarding their funds in retirement is choosing the "right" bank if they wish to take a bank's package of financial services/products rather than spread money (and therefore risk) between different institutions.

Much has been made recently of the opportunity for people to switch banks if they have valid, or misconceived, complaints about fees and service.

The fact is that relatively few, proportionately to all customers, switch after they have analysed the costs, including refinancing mortgages, overdraft facilities and similar items.

Banks have changed from institutions that merely took money in and lent it out at a margin.

All reports from the four overseas-owned banks operating here and their parents refer to integration of financial services.

That term refers to traditional retail and wholesale banking, life and general insurance, business and private loans, savings schemes, health products, telephone and internet banking, and the raft of plastic with access to ATMs and other card-useable facilities.

People using, or thinking of using, a bank for management of funds set aside for retirement purposes should remember what every funds institution is required to state in their documents: historical performance is no guide to future performance.

There is also the question of whether individuals can do better than banks or other fund managers if they operate on their own account.

They may but the risk is much higher because few but the very wealthy can make significant diversification, although that comment has to be tempered with the note that they are not wedded to benchmarks and can outperform fund managers on both short and long-term bases.

Within those caveats it is true the banks have grabbed a growing share of the savings market.

ASB Bank had the most spectacular percentage growth in recent years, albeit from a relatively low base.

The bank increased managed funds from $259.5 million in December 1998 to $744 million at the end of 2000 ( a 186.7% increase) and controlled $938.4 million in July this year, a gain of 26.1% since December and 261.6% from the end of 1998.

How much that has to do with "Goldstein" is unanswerable but ASB has been dynamic in pushing its products.

The bank recently joined the "master trust" operators, with the launch of the ASB Superannuation Master Trust.

A master trust brings together separate superannuation funds, registered under the Superannuation Schemes Act 1989, into one trust deed and one fund manager.

The ASB master trust is representative of such schemes. It has one catch, in that it will accept only "specified members" who have to be part of appropriate schemes.

While there is provision for individual members, the ASB master trust trustee does not wish to offer membership in the scheme to ordinary members, although it intends to do so in future.

Banks hit the retirement funds industry heavily in recent years but they will be judged on performance. Institutional names mean little in that context. Individuals manage investment funds and the banks have to retain competent individuals to service adequately the requirement of the other individuals who are their customers.

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