Wealth Management Strategy Discussion Garry Mulcahy

Wealth Management Strategy DiscussionGarry Mulcahy

CEO Strategy and Marketing, Wealth Management9 April 2001

2

Agenda

Wealth Management Business Portfolio Approach

Domestic Business Analysis

International Opportunities

Business Model Drivers

Summary

3

Moving towards:• Funds Supermarket with

small number of key players• Margin contraction• Involving product choice:

managed funds, personal portfolios and direct share management

• Equity focus in asset allocations

• Polarisation in asset management industry with competition between boutiques and the big 4 to 5 players

• Multi-channel access with a significant employee owned IFA distribution

• Private sector dominance of pension plans

Moving towards:• Funds Supermarket with

small number of key players• Margin contraction• Involving product choice:

managed funds, personal portfolios and direct share management

• Equity focus in asset allocations

• Polarisation in asset management industry with competition between boutiques and the big 4 to 5 players

• Multi-channel access with a significant employee owned IFA distribution

• Private sector dominance of pension plans

Our portfolio of businesses is diversified geographically across the Market Maturity Curve

Asia

Australia

US

UK

Europe

Immature Emerging Evolving Highly Evolved

Japan

New Zealand

4

Horizon 1- Efficiency

Horizon 2- Grow

Horizon 3- Develop

Time

Profit

Lifetime

Insurance

Retail Investment Platforms

Corporate Solutions

PlumAdvantEdge

Your Prosperity/NOLTAsia JVs - HK. Indonesia

Asia JV - Thailand

Project Endeavour

Future Acquisition ?

It is also well diversified within our key domestic market

5

Agenda





Summary

6

Key Value Drivers Behind Operating Profit

MOSPROFIT

TOTAL

RETURN

MARK TO MARKETREVALUATIONS

VALUE OF NEW BUSINESS

VALUE OF INFORCE BUSINESS

FEES

EXPENSES

ACQUISITION

MAINTENANCE

FUM/A

NET FUNDS FLOW

INVESTMENT EARNINGS

FUM/A

EXPENSES

LAPSES

MARGIN DISCOUNT RATE

SALES

MARGIN

SELLING EXPENSES

MULTIPLIER

PREMIUMS/DEPOSITS

CLAIMS/REDEMPTIONS

7

We are executing a multi-domestic global strategy which leverages core capabilities in retailing and distribution

Retailing and Distribution

Retail Servicing

Principal Investment Advisory

(PIA)

AssetManagement

Custody/ Trading

Basis for winning proposition in global markets

Global Capabilities

Domestic Capabilities

Multi-domestic model for global

operations- ‘design globally, execute locally’

Value Chain Focus

Appropriate Model for Global Operations

Global model- design and

execute globally to realise scale and

process efficiencies

We must continue to increase

the scalability of the existing

business model in the face of

margin contraction and industry

consolidation.

Our target activities favour a

‘multi-domestic’ approach

We will adapt existing exportable

(domestic) capabilities to suit

requirements of new markets

Need to adapt capabilities may

require alliances with local FS

players or innovative

organisational structures

8

Global Trends Across the Value Chain

Distribution/Advice

Distribution/ Retail Service

Investment Management

CustodyInvestor

• Government mandates and incentive for self funded pensions

• Increasing legislative complexity resulting in demand for advice

• Greater demand for independent advice

• Increased self-service

• Increase in IFAs

• Greater number of distribution channels (IFAs, workplace, proprietary, direct)

• Increasing dominance of a small number of investment supermarkets

• Greater automation up and down the value chain

• Insurance breaking into core components of investment and protection

• Greater variety of protection products

• Margin contraction

• Polarisation of investment management reflecting emergence of boutiques in the face of significant consolidation

• Increased use of Index funds

• Margins will further contract as value migrates down value chain

• Global consolidation is well progressed

• Outsourcing will increase flow to consolidated players

• The segments furthest from the investor have undergone the most change to date and are those areas most conducive to deriving scale economies

• However, new technologies including web-based advances are slowly feeding up the value chain and beginning to drive changes at customer touch-points

• Trends in the advice market, however, reflect the growing complexity of legislative structures, proliferation and increasing prevalence of higher risk investment products

9

Retailing and Distribution

Brand

Retail and Wholesale Servicing1


Investment Management

Execution and Processing

Internal- NAM

External Fund

Managers

NAG Custody

Other External

Customers

Multi Manager

Common Admin

Platform

ProductBrand

Consolidated ‘engine’

Sanford

Hartley Poynton

JB Were

Interface to Banking Platform

Specialist Alliances

Desired future state

Business focusOutsource

To compete and sustain profit growth requires scale. The business model will be based on a common administration/ servicing platform which supports multiple value propositions/channels

Your Prosperity/NOLT

IFA’s

Godfrey Pembroke

Apogee

Garvan

MLC FP

MLC PCS

National Personal

National Private

National Business l Services

John Nolan & Associates

Plum

Thr

eeS

ixty

AdvantEdgeMLC

Insurance

Mas

terK

ey

Fle

xiP

lan

SME

Corporate

Per

sona

lB

usin

ess

Retail

Premium

Private

MLC

IC

P

lum

10

Liquidity Management

Estate Mgmt./Insurance

GeneralLife / Risk

HealthTrusts

Cards, Cheque Cash hub

Customer Financial Portfolio

Debt Management

PersonalHome

InvestmentBusiness

Investment Portfolio

Three key elements;- tax structure- assets- management 25 40

AGE

Per

son

al W

ealt

h

Wealth Accumulation Wealth Consumption

Financial Lifecycle of Customer

Death

The holy Grail…a customer centric business model delivering holistic financial solutions over a customer’s life-time.

Securityselection

AssetAllocation

Strategy(tax)

11

Wealth Accumulation Wealth Consumption

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

AGE

PR

OF

IT I

N $

PE

R A

NN

UM

Bank Profits

Financial Services Profits

By age 45 over 50% of profit signature comes from non bank products

Risk Ins,

Personal Loan

General Ins

Home Loan

Margin Lending

Savings

Superannuation

Estate PlanningInvestments

Retirement Income

Trustee Services

Estate Administration

Profit for Average Premium Customer

Advice Continuum

….. delivering the opportunity to participate in the substantial profits derived from providing the full suite of services and life-time financial advice.

Assumptions•University Graduate•Married, two children in late 20s•Earning 3 x AWE at age 45•Purchases 3 mortgages during

lifetime, super and insurance•Retires at age 55 with annuity

12

OfferFinancial practice Comprehensive financial advice, practice management, client administration services, business systems and advisory tools

1980 1985 1995 2000

Financial advisers Product with advice to suit needs

Evolution of the Financial Planning Profession

Sole OperatorProduct only

13

Adviser Solutions(Platform/Product Philosophy

and Implementation)

Platforms Investment Risk Banking

IFA’s

MLCPCS40

MLCFP320

Apogee

276

GodfreyPembroke

175

Garvan

317

360IFA’s50

Premium346

PrivateXX

BusinessXX

Adviser Support Platforms

NationalInsuranceServices

35

MasterKey FlexiPlan

National Australia Financial Planning

Integrated Retail Distribution Model

ThreeSixty Advice Platform

Personal60

~ 5000

IndependentAligned Bank

346

14

Range of Integrated solutions provided

Low

High

LowDegree of advice High

Our portfolio of advice dealerships is the broadest in the Australian market, further enhanced by the recent Deutsche Financial Planning acquisition

Now includes Deutsche FP

15

Diversification of business sources is significant

0%

20%

40%

60%

80%

100%

Business Sources

Corporate

Bank Channel

Independent IFA's

Aligned IFA's

Total New Business Sales

16

National have successfully met the lending needs of our SME customers. The opportunity is to extend our wealth management capabilities to this segment.

TIME/BUSINESS LIFE CYCLE

• business planning and advice for new businesses

• long term business planning

• technology solutions

• business planning and

advice• innovative funding

(risk management)• technology solutions• wealth management

• managing surplus to grow personal wealth


• focus on preserving wealth for retirement

• succession/estate planning


Start Up Growth Maturity Preservation and Transfer

Cy

cle

17

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Fin

an

cial

Se

rvic

es

Pro

fit

pa

.

The opportunity to capture additional revenue from our strength in business client relationships is significant

Start Up Growth Maturity Preservation and Transfer

Traditional Banking ProfitsOur core competency

Personal Needs of ProprietorsLimited success

Personal Needs of EmployeesLimited success

Succession advice and investment needsNo offering

Illustrative

18

Agenda





Summary

19

DistributionServicing


AssetManagement

Custody/ Trading

Domestic 0-5 bps

Int’l 10-20 bps

Index 5-10 bps

Active 30 - 80 bps

0-10 bps 40-90 bps 30-100 bpsRevenue Pool (bps)

Margin Trend

Comments Scalable/portable segment, risk of competition from

international players

Strategic/Economic trends means we will continue to focus on the distribution and retailing end of the value chain in retail funds management...

Commoditisation favours scale (large

incumbents and global players)

Opportunities to expand down the value chain (eg. Frank Russell)

Bundling (platforms/ solutions) takes focus off pure

service

Fee for service trends enable intermediaries

to take more of the revenue pool

Ability toextract value All Channel

Retail Funds Management Value Chain

GrowStrategy Grow GrowNiche play or Managed

exit

Grow

Source:Proprietary Analysis

20

We are in a strong growth position in the retail investment platform market place with share of inflows exceeding current market share position….

Source: Assirt Market Share Report

Market Share of Annual Retail Inflows - Dec 2000

CBA/Colonial23%

National/MLC17%

BT14%

AMP11%

ANZ7%

IPAC5%

Westpac4%

Others19%

Retail Assets Under Management - Dec 2000

0

5

10

15

20

25

30

35

40

CBA/Colonial National/MLC AMP BT Westpac ANZ

$Bil

lio

ns

17%

15%12%

9%7%

5%

Discretionary Master Funds Under Administration - Dec 2000

0

2

4

6

8

10

12

14

16

AMP Asguard National/MLC Norw ich Westpac Colonial

$Bil

lio

n

24%

14% 14%11%

8% 6%

Discretionary Master Funds Annual Inflows - Dec 2000

AMP19%

Asguard12%

National/MLC29%

Norwich14%

Westpac7%

Colonial3%

Other16%

21

Life Insurance Value Chain

Source:KPMG Insurance Industry Survey 1999, Proprietary Analysis

Retailing and

Distribution

Retail Servicing

UnderwritingReinsuranceAssetManagement

Custody Trading

Share of Revenue Pool

3-5% 8-10% 20-25%5-7%45-50%10-12%

Market Attractiveness

Ability to Extract Value

MaintainOutsourceStrategy Grow GrowNiche play or Managed exit

Grow

Strategic/Economic trends means we will continue to focus on the distribution and retailing end of the value chain in life insurance...

22 Source: Rice Kachor - Risk Insurance includes Term, Trauma and Disability Insurance

We are in a strong growth position in the life insurance market due to disciplined underwriting and sustainability of pricing

Share of New Business Risk Insurance - Sept 2000

AXA-AC&L17%

CBA-Colonial13%AMP-GIO

11%Tow er-FAI

8%

ING Life7%

Other31%

National-MLC13%

-

50

100

150

200

250

300

350

400

AXA-AC&L CBA-Colonial National-MLC AMP-GIO Royal Sun

$Mil

lio

n

Risk Insurance Annual Inforce Premiums- Sept 2000

18%

14%12% 12%

10%

23 Source: Accenture Wealth Management Case Studies

Product Manufacturer

Implemented Consulting Model

Revenue Pool (bps)

Revenue Pool (bps)

Custody

CustodyAsset

ManagementPIA/

consulting

Sales/ Distribution/ Servicing

Asset Management

PIA/ consulting

Sales/ Distribution/ Servicing

0-3 30 5 30

0-3 25 10 30

Cost to Client

65-68 bps

65-68 bps

Wholesale Funds Management Value Chain

Strategic/Economic trends means we will continue to focus on the distribution and retailing end of the value chain in wholesale funds management...

24

Agenda





Summary

25

Multi-manager Asset Manager Capability

Unit Trust Pension SuperInsurance

Intermediary Support Services

Bank IFA WorkplaceDirect/

tiedAsset

Consultant

Brand

Retail InstitutionalCustomer

Advice /DistributionChannel

Offer

SME

Administration Platform

Investment Specialists

We have developed the international expansion hypotheses using the framework of a generic business model

Banking

26

The UK provides us with the most attractive near term opportunity

Life Market SizeCurrent & Growth

Retail Funds CurrentMarket Size & Growth

Growth Prospects

Market Maturity

Entry Barriers

Competition and Distribution

Political / Cultural Issues

Overall Rating

Evaluation Dimensions

UK EuropeNorth America

Large and growing market, but very mature and competitive which makes it difficult to add value particularly without existing footprint

Large market, which is still growing and developing in maturity. Existing Footprint helps although acquisitions may be expensive

Asia ex Japan South America

Small market with low growth prospects or a lack of political will to encourage the industry. Established US players makes it difficult to compete.

Japan

Large markets with attractive growth prospects. Political and cultural challenges in all markets. Distribution access is key.

Large market undergoing significant change, but cultural issues and competition present challenges which have limited foreign successes to date. Will need innovative entry strategy

Significant long term growth potential but difficult political and legal environments in some markets. Joint venture required in many markets. Existing Footprint helps

27

The UK wealth management business will be developed in a series of waves

Implementation Waves

Customers

Investment Choice

Channel

Technology

PremiumBusiness

High Value Retail

Multi-mgr (Limited)

Tied planner

E-enabled

BusinessPremium

Wide

Internal IFAs

Web-enabled

PrivatePremiumBusinessNon bank

Wider

Internal IFAsExternal IFAs

Web-enabled

Wide

Direct

Web-enabled

Execute Integrated financial solutions model

Funds supermarket

Branding

Transformation & Preparation

Transformation & Preparation BuildBuild EnhancementEnhancement ExtensionExtension

• Build the financial planning model & support

• Re-engineer Operations, investment infrastructure & marketing

• Obtain regulatory approvals

28

Agenda





Summary

29

Key Value Drivers Behind Operating Profit

MOSPROFIT

TOTAL

RETURN

MARK TO MARKETREVAL.

VALUE OF NEW BUSINESS

VALUE OF INFORCE BUSINESS

FEES

EXPENSES

ACQUISITION

MAINTENANCE

FUM/A

NET FUNDS FLOW

INVESTMENT EARNINGS

FUM/A

EXPENSES

LAPSES

MARGIN DISCOUNT RATE

SALES

MARGIN

SELLING EXPENSES

MULTIPLIER

PREMIUMS/DEPOSITS

CLAIMS/REDEMPTIONS

Strategy

Platform sale secures 100% of portfolio - not dependent on short term investment performance

Platform offering + intermediary support services provide tools to enable the ongoing delivery of the advice/service proposition

30

AFS only 3.4M Customers

Note: General Insurance counted as an AFS product in these numbers.AFS = Australian Financial Services NFM = National Funds Management

AFS/NFM Summary - All Customers

Providing our customers in Australia, NZ, GB & Ireland with wealth management product/solutions represents significant untapped potential. Exploiting this significant potential will need to draw on our multi-channel distribution capability.

GB/Ireland:4.4Mil customers with minimal cross-sell of wealth management products

NFM only90k Customers

AFS/NFM264k customers

31

Summary

We are differentiated by:

A focused strategy

A diverse portfolio of businesses - both in maturity and geographies

An very distinctive and exportable investment management capability

The most developed and diverse distribution model in Australia

Unique take to market of strategy via MLC MasterKey

Untapped bank client base potential, particularly in Australia and UK

32

Summary

Innovative plays in the areas of:

MLC MasterKey

On-line financial services via Your Prosperity

Corporate Superannuation via

Workplace distribution via AdvantEdge


33

Summary

An ability to execute strategy evidenced by recent activity:

Integration design completed with implementation progressing well

Sale of County Investment Management

Launch of MLC Implemented Consulting

Purchase of asset consultant John A Nolan

Purchase of Deutsche Financial Planning and Portfolio Service

UK Investment service designed and under construction

Launch of innovative SME superannuation offer via MLC MasterKey

Business Super


34

So far as the law allows, National Australia Bank Limited ABN 12 004 044 937 ("the National") does not warrant or represent that this document (or the information set out or referred to in this document) is accurate, reliable, complete or contemporary. National expressly advises that, to the extent permitted by the law of Victoria, Australia, by which law use and all other matters relating to this document are governed, it disclaims all and any responsibility for and shall not be liable in any way whatsoever (whether in negligence or otherwise) for any loss or damage which may be suffered by any person relying upon this document (or the information or conclusions contained in this document). This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The National, its affiliates, and employees may hold a position or act as price maker in the financial instruments of any issuer discussed within this document or act as underwriter, placement agent, adviser or lender to such issuer. Past performance is not a guide to future performance and recipients should not rely upon the contents of this document but should make their own assessment and evaluation.(c) Copyright National Australia Bank Limited ABN 12 004 044 937

Disclaimer

35 www.national.com.au

Documents

Wealth Management Strategy Discussion Garry Mulcahy