Sharebroking and investments: Sharebrokers become 'wealth managers' as boomers age

By Nick Stride

Friday 22nd March 2002

As the baby boom population bulge slides toward retirement sharebrokers are diversifying away from their core commission-based services to offer a new range of products.

Despite headlines about frantic credit card spending, poor retirement saving and New Zealand's persistent status as an importer of capital, brokers say there's plenty of private client money out there and it's growing steadily.

Reserve Bank figures show direct equity investment, investment in managed funds and bank deposits have grown hugely in recent years.

Part of the reason for this may be that, as the baby boom generation ages, more middle and high income earners are paying off their mortgages and seeing their children leave home, freeing up income for accumulation and investment.

A second boomer-linked phenomenon is a "wealth concentration effect" which, according to JB Were private stockbroking head John Cobb, is already starting to make itself felt. "The growth end of the market is wealth management."

The oldest members of the boom generation are starting to die off, leaving cash, property and investments to their far less numerous offspring.

This is starting to produce a new generation of relatively young and distinctly well-heeled investors, many of whom will be professionals with a relatively sophisticated understanding of investment.

These effects are predicted to increase steadily the demand for financial management and advice and brokers are positioning themselves to offer the range of services both ageing boomers and their well-heeled heirs will need.

Brokers have also been looking at the way they charge for the services they offer.

Revenues have traditionally come from charging commission on equity and fixed interest instrument transactions.

"But transactions are just a commodity," Mr Cobb says.

"They cost us very little. The value we add is in our service and advice and premium access to new issues. So we're aligning what we're charging with what we actually provide."

JB Were is developing a suite of wealth management products and value-added services to meet the new demand. This week launched a private equity fund that aims to invest up to $40 million in later-stage, rather than startup, Australian and New Zealand private companies.

The fund will aim for the sort of returns - 18 - 20% on average over 10 to 20 years, according to research firm Venture Economics - that US private equity funds have been able to deliver.

JB Were also offers a "top end" private banking service, a transtasman equity unit trust and a discretionary portfolio management service.

Its "wrap account" premium service offers broking, advice, margin lending, custody, direct equity and managed funds.

Other brokers have also started developing and marketing products to take them away from the transaction commission model.

Forsyth Barr, now Forsyth Barr Frater Williams, launched the "Thinking About Tomorrow" fund in 1990 aimed at investors planning for their retirement. The fund has attracted around $82 million from nearly 2700 investors.

Forsyth Barr also offers a discretionary portfolio management service to individual investors and trustees.

Earlier this year Macquarie Equities offered the Titan Trust, a hedge fund with the potential to make returns when markets fall as well as when they rise.

Christchurch-based broker Greenslades has been pursuing a diversification strategy for two or three years.

"If we were relying on our equity and fixed interest trades we'd probably be wondering how we'd pay the bills," chief executive Roy Borgman says.

Mr Borgman estimates three years ago about 70% of his firm's revenue would have come from transaction commission and 30% from other sources.

Today the mix is about 50-50 but Greenslades is aiming for 30-70 in favour of "other income."

The broker offers the Greenslades Superannuation Fund and financial planning services, including insurance broking and medical insurance.

"We find that, rather than training or hiring sharebrokers, it's easier to hire financial planners and train them to be sharebrokers," Mr Borgman says.

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