Competition, or rather the lack of it, is becoming a major factor in Australia’s wealth management industry as several players fight against the trend for consolidation.

Competition, or rather the lack of it, is becoming a major factor in Australia’s wealth management industry as several players fight against the trend for consolidation.

AMP’s bid for the Australian assets of French bancassurance giant AXA is all about shoring up the company’s wealth franchise against the encroachment of the Big Four banks, one of which – the NAB – is the rival bidder in the A$13 billion ($11.7 billion) battle.

The potential diminution of competition was the reason why Australia’s watchdog, the Australian Competition and Consumer Commission, recently ruled that it prefers AMP’s bid to that of NAB, which itself bulked up last year with the A$825 million acquisition of Aviva’s local wealth management business.

The ACCC examined the Aviva deal, but gave it a tick, but might not be so accommodating even if the NAB triumphs on the market in its AXA bid.

"A merged NAB-AXA would hold twice the amount of Funds Under Administration (FUA) on its retail investment platforms to that of its closest competitors,” the ACCC said its recent statement on the AXA bid.

“A merged AMP-AXA would hold an amount of FUA on its retail investment platforms similar to NAB's current market share," it said.

The ACCC goes on to say that the NAB, if successful, might be less likely than AMP to distribute its wealth management products through other channels, such as what is left among the smaller regional banking players.

The reality in the Australian financial sector is that the Big Four have emerged from the financial crisis in an even stronger competitive position than before.

Non-bank mortgage competitors have withered away as the securitisation markets have stalled, foreign operators have exited wealth management and sold to the Big Four, and one foreign bank with a reasonable local footprint – HBOS – has been forced to sell a strong Australian asset, BankWest, to the CBA because of problems at home.

Strength at a cost

The strength of the Big Four has been touted as one reason why Australia has weathered the financial storm, but it has come at a cost and perhaps the regulators are starting to realise it.

AMP boss Craig Dunn is already playing on these sensitivities, talking up the potential of a merged AMP-AXA becoming a “Fifth Pillar” to challenge the big banks. The alternative for AMP, in reality, is obscurity.

And further down the chain, the consolidation is one reason why regional bank Bendigo and Adelaide Bank has openly said it is scouting for wealth management opportunities.

Recently installed Bendigo and Adelaide chief executive Mike Hirst said the bank was also looking to take part in the carve-up of the wealth management market by its bigger rivals.

While the Bendigo and Adelaide has long been touted as likely to link with the mid-sized wealth player IOOF – which itself merged with Australian Wealth Management last year - analysts said it could instead be looking at unwanted assets that were shed as a result of the current batch of merger proposals.

Just what those assets will be remains to be seen. At the moment, that depends on the views of the ACCC.