IBISWorld Industry Report K7515 Financial Planning and ...1m0mn21hecnm1bnug94elgnchdr.wpengine.netdna-cdn.com/... · Financial Planning and Investment Advice October 2012 3 Market

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

5 Current Performance

8 Industry Outlook

12 Industry Life Cycle

14 Products & Markets14 Supply Chain

14 Products & Services

16 Demand Determinants

16 Major Markets

17 International Trade

18 Business Locations

20 Competitive Landscape20 Market Share Concentration

21 Key Success Factors

21 Cost Structure Benchmarks

22 Basis of Competition

23 Barriers to Entry

24 Industry Globalisation

25 Major Companies25 AMP Limited

26 Westpac Banking Corporation

27 Australia and New Zealand Banking Group Limited

28 Commonwealth Bank of Australia

29 National Australia Bank Limited

32 Operating Conditions32 Capital Intensity

33 Technology & Systems

34 Revenue Volatility

34 Regulation & Policy

35 Industry Assistance

36 Key Statistics36 Industry Data

36 Annual Change

36 Key Ratios

37 Jargon & Glossary

IBISWorld Industry Report K7515Financial Planning and Investment AdviceOctober 2012 Tim Stephen

Planning for change: Demographic trends and superannuation legislation support demand

www.ibisworld.com.au | (03) 9655 3881 | [email protected]

WWW.IBISWORLD.COM.AU Financial Planning and Investment Advice October 2012 2

Establishments in this industry provide financial planning and advice to clients.

The primary activities of this industry are

Financial investment advisory

Financial planning

Investment advisory

Financial asset investment consulting

Industry Definition

Main Activities

Similar Industries

Additional Resources

The major products and services in this industry are

Investment advice and management

Self-managed super fund advice

Superannuation and retirement advice

Tax advice

About this Industry

K7411 Life Insurance in AustraliaCompanies in this industry provide life insurance.

K7412 Superannuation Funds in AustraliaBusinesses in this industry operate superannuation funds.

K7519 Stock Exchange & Share Registry Services in AustraliaEstablishments in this industry provide services to finance and investments.

K7512 Investment Banking & Securities Brokerage in AustraliaOperators in this industry are engaged in securities brokerage and investment banking.

K7514 Funds Management (except Superannuation Funds) in AustraliaCompanies in this industry manage unit trusts and other investment products.

K7521 Superannuation Funds Management in AustraliaFirms in this industry manage superannuation funds.

K7522 Insurance Brokerage in AustraliaBusinesses in this industry provide insurance services.

For additional information on this industry

www.asic.gov.au Australian Securities & Investments Commission

www.fpa.asn.au Financial Planning Association of Australia

www.ifsa.com.au Financial Services Council


Market ShareAMP Limited 15.9%

Westpac Banking Corporation 8.2%

Australia and New Zealand Banking Group Limited 7.8%

Commonwealth Bank of Australia 7.2%

National Australia Bank Limited 6.9%

Key External DriversPopulation aged 55 and olderConsumer sentiment indexDemand from funds management (except superannuation funds)Real household disposable incomeLegislative compliance requirements for services to finance and investment

Key Statistics Snapshot

Industry at a GlanceFinancial Planning and Investment Advice in 2012-13

Revenue

$4.4bnProfit

$1.7bnWages

$1.4bnBusinesses

3,214

Annual Growth 13-18

4.3%Annual Growth 08-13

-2.5%

Industry Structure Life Cycle Stage Growth

Revenue Volatility Medium

Capital Intensity Low

Industry Assistance None

Concentration Level Low

Regulation Level Heavy

Technology Change Medium

Barriers to Entry Medium

Industry Globalisation Low

Competition Level Medium

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 36

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SOURCE: WWW.IBISWORLD.COM.AU

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Revenue vs. employment growth

Employment

34.2%NSW

2.5%ACT

25.8%VIC

2%TAS

1%NT

17%QLD

10.8%WA

6.7%SA


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Key External Drivers Population aged 55 and olderThis demographic is a key user of the industry’s services. Those approaching or planning for retirement are more likely to need the services of a financial adviser. In addition, older age groups tend to have a greater share of wealth, accumulated over a longer working history.

Consumer sentiment indexThe level of investor confidence in the industry influences the level of demand for the industry’s services.

Demand from funds management (except superannuation funds)Investors, both retail and institutional,

normally seek financial advice on the placement of additional funds with investment managers.

Real household disposable incomeThe level of household disposable income influences investors’ ability to invest, and therefore influences demand for the industry’s services.

Legislative compliance requirements for services to finance and investmentGovernment policies and regulations relating to the industry influence the level of activity and the level of demand for the industry’s services and products.

Executive Summary

The Financial Planning and Investment Advice industry is on the cusp of fundamental change. FOFA – Future of Financial Advice legislation – has plagued the industry with uncertainty. Following a swathe of advisory firm disasters, the government has announced an overhaul of the industry, addressing issues of conflicts of interest, transparency and duty to clients. The industry initially fought the impending new regulation, but has now largely accepted the changes, and many firms are making changes to their business models. A number of the larger dealer groups are already moving towards a fee-for-service based remuneration model, while distancing themselves from commissions.

The industry is entering this new era having barely recovered from the global financial crisis. A drop in the value of assets under advice as share markets plunged and a fall in new fund inflows as investor confidence withered caused both revenue and profit to fall in 2008-09. Although things have begun to turn around, industry revenue is expected to decline at a compound annual rate of 2.5% in the five years through 2012-13, when revenue will measure an estimated $4.41 billion. The industry will struggle

in 2012-13 with growth estimated to measure just 0.6%.

The Financial Planning and Investment Advice industry comprises a handful of large firms and a vast number of individual proprietors. The largest firms are the wealth management arms of large financial institutions, including banks and the dealer groups they own. There will be about 16,249 financial advisers in the industry in 2012-13. Employment is expected to decline at a compound rate of 0.5% as uncertainty leads to consolidation, lay-offs and career changes.

Over the next two years, the structure of the industry will shift significantly, with FOFA to be implemented July 2013. Despite this, demographic trends, superannuation legislation and the complexity of the financial environment will support growing demand for financial advice. IBISWorld expects that greater transparency, professionalism and client confidence as a result of the proposed regulation changes will benefit industry players. In the five years through 2017-18, industry revenue is expected to grow at a compound rate of 4.3% to reach $5.43 billion. Profit will also improve, averaging 26.4% higher in the next five years compared to the previous five.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage


Industry Performance

Funds under advice go under

After many years of steady increases, the value of FUA in the industry has been volatile in the past few years. The level of FUA per adviser is not only an important determinant of revenue, but also of profit. The value of FUA averages between $20 million and $25 million per adviser for those working for the largest firms or dealer groups in the industry, down to about $5.0 million for the smaller groups. While the value of FUA has improved with the upturn in the sharemarket, and

is expected to continue to grow over 2012-13, the recent volatility has exposed the vulnerability of industry revenue to financial market fluctuations. Both 2010-11 and 2011-12 are expected to be solid recovery years for many industry players, and FUA is on the rise.

Although FUA per adviser fell during the downturn, costs for the industry remained relatively fixed. As a result, adviser productivity and profit dropped over 2008-09. Firms have been reluctant

Current Performance

The global financial crisis delivered more to the industry than just a sharp slump in revenue. It also served up some highly publicised losses by clients of financial advisory firms and a government review into the structure of the industry. While the remuneration of advisers is receiving close attention, the size of this remuneration has suffered. Over the five years through 2012-13, industry revenue is expected to contract at a compound annual rate of 2.5%, dipping to an estimated value of $4.41 billion. This weak result is primarily due to two consecutive years of falling revenue, culminating in a 19.4% drop in 2008-09. Much of this fall was tied to a slump in the value of assets under advice by the industry and the slowing of new investment fund inflows.

With the global financial crisis now in retreat, sharemarkets around the world strengthening and clients regaining their confidence in the market, the industry is reviving. However, 2012-13 has brought about widespread uncertainty from both clients and advisors on the future of the industry, as the introduction of FOFA legislation looms. Since the legislation was announced, many people have been enlightened to the downside of the commission remuneration structure, and many advisors offering “free” consultations have been met with increasing cynicism. For this reason, IBISWorld expects subdued revenue growth for 2012-13, estimated at 0.6%, as large dealer groups and individuals alike adapt to new remuneration models, and perfect their pricing strategies.

Key External Driverscontinued

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Funds under advice go under continued

to cut back on financial adviser numbers for fear of being unable to attract experienced staff back when industry conditions improve, and these worries have been compounded with the exodus of advisors resulting from impending FOFA legislation. Firms are also focusing on client retention by strengthening relationships and communication with clients, a process that could be undermined by staff retrenchment. Many of the major players are actively seeking to bolster their ranks as the industry is expected to enter a strong growth period. AMP has been aggressive in recruitment, while NAB has opened the Advice Business School to recruit and train advisers and planners.

While profit dropped dramatically in 2007-08 and 2008-09 to about 12%, it has since improved as markets have turned around and M&A activity has led to cost savings through economies of scale. Profit

is estimated to average 29.9% over the five years through 2012-13, ending the period at a healthy 35.4%. This has dropped off as compared to 2011-12, however, dented by the effects of increasing use of the fee-for-service pricing model, which is still to be perfected by many dealer groups.

Governments, storms and remuneration

In February 2009, a Parliamentary Joint Committee launched an inquiry into the Financial Planning and Investment Advice industry. The Ripoll Inquiry released its recommendations in late 2009, and in April 2010 the government announced its intention to introduce significant reforms to the industry. The terms of reference included the role of advisers, models of remuneration, conflicts of interest, appropriateness of advice, licensing arrangements and need for regulatory change. The most far-reaching of these was the introduction of fiduciary duty for financial advisers and the banning of commissions and other remuneration payment models that misalign the interests of advisers and their clients.

A catalyst for the inquiry was the losses suffered by industry clients due to inappropriate and high-cost investment advice provided by a few firms. These failed investments include Opes Prime, Westpoint and agribusiness scheme operators Great Southern and Timbercorp.

Of particular notoriety is Storm Financial. The collapse of Storm and the large losses experienced by its clients are under investigation by ASIC. Questions have been raised regarding the appropriateness of the advice provided to clients and possible conflicts of interest that shaped this advice. Storm’s advisers received large upfront fees of 6.0% to 8.0% of funds under advice (FUA). This fee was paid directly by Storm clients to the adviser.

Another contentious issue examined by the inquiry was the use of trailing commissions, which at the time accounted for about 35% of industry revenue. Trailing commissions are an ongoing annual commission received by the adviser, normally calculated as a percentage of the FUA. Trailing commissions are distributed by the supplier of the investment product, but come out of the client’s funds. This commission is often represented as a fee for ongoing services provided to the client, although in some cases there are no further advice services provided.

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Response to fee-for-service

From the announcement of the proposed legislation, the industry began distancing itself from commission remuneration, and the use of fee-for-service was adopted by many industry players as early as mid-2010. Many industry participants, however, fiercely argued that the proposed regulatory changes would destroy the industry, leaving investors and advisors worse off.

Fee-for-service can be based on a fixed or hourly rate, or a value may be placed on the provision of the Statement of Advice (SOA). This model avoids the imposition of ongoing annual fees embedded in the cost of particular products. In the case of fees based on the value of assets under advice, there may still be the potential for conflict of interest as revenue is based on the amount a client invests in financial products.

Some of the largest industry players were among the first to make the shift to a fee-for-service model. AMP had shifted to a no-commission remuneration model by June 2010. In 2008, NAB Financial Planning completed the transition to a fee-for-advice structure for all new clients, well before the legislation was drafted. The dealer groups owned by NAB had also moved to a fee-for-service model by June 2010.

The current drafting of legislation dictates that a shift to a fee-for-service model for all licensed financial services operators will be required by 1 July 2013, and will be legislated in the Corporations Act 2001. Industry bodies have been lobbying to ensure sufficient time is given to dealer groups to restructure remuneration models to align with the proposed regulatory changes.

Superannuation advice

Superannuation arrangements in Australia have been a benefit to the industry, causing an increase in the number of people seeking financial advice in this area and an increase in the value of superannuation assets under advice. Many people placed large lump sums into their superannuation funds prior to limits being applied to government co-contribution amounts at the end of June 2007.

Financial advisers also provide advice to self-managed superannuation funds (SMSFs). A report by AMP suggests that providing advice to SMSF holders generated $950 million of fees in June

2008, up from $890 in May 2007. It also suggests that the average level of fees charged per SMSF was $4,500, up from $3,900 in 2007. SMSFs are highly complex, highly regulated products that are typically only used by those with advanced knowledge in the area of superannuation, or those with a financial adviser. There is an increasing trend towards people seeking more control over their finances, especially after so many saw their super balances decimated when markets crashed during the financial crisis. SMSFs, therefore, have rapidly gained in popularity.

Governments, storms and remunerationcontinued

Nearly all the largest financial adviser firms (or dealer groups) are owned by financial institutions that also provide investment products, funds management services and administration platforms.

Added to this is a remuneration structure where part of an adviser’s remuneration, even for independently owned firms, comes from product originators. Conflict of interest pitfalls occur frequently.



Opposing arguments The effects of the FOFA legislation have been argued heatedly, with government and independent research suggesting both industry and consumer will be better off while many industry bodies and players arguing the exact opposite. The government stated that FOFA reforms will ultimately produce an industry with a greater claim to professionalism and independence of advice, which will support growing demand for its services. Industry players have claimed the reforms are simply not sustainable, adding various tales of woe to come.

Much of the industry is already moving

away from commission-based payments to a fee-for-service model, but not without considerable protest and criticism. A survey conducted by IFA Magazine showed that 57% of dealer groups have begun making changes to their remuneration models to be more aligned with the proposed regulatory changes. AMP, Count Financial, NAB and IOOF have all made significant adjustments to their remuneration framework, and claim to be FOFA-ready. On the other hand, ANZ has axed advisors from their wealth management division in preparation for the implementation of FOFA.

Industry Outlook

The Financial Planning and Investment Advice industry is poised for a period of transformation. FOFA legislation – the Federal Government’s response to the Ripoll Inquiry – includes a ban on commissions and volume-based payments from product providers to financial advisers and the introduction of a fiduciary duty. The next five years will prove tumultuous, and many current players will exit the industry over this time. Many advisors are also likely to change careers. However, by the end of the next five years, the pros are expected to outweigh the cons, as greater transparency in pricing and more ethical operational and remuneration framework result in growing demand for financial

advice. Industry revenue is forecast to grow at a compound annual rate of 4.3% to reach $5.43 billion.

The period will start slowly, however, as the industry struggles to adjust with the introduction of FOFA legislation. The amendments to the Corporations Act are scheduled to come into effect on July 1 2013. However, many large advisory firms have already become FOFA-compliant, and while there is expected to be a period of uncertainty during which the industry will suffer from both a shortage of skilled advisors, and a shortage in demand, the impact is not expected to bring about a drop in revenue. Revenue is forecast to grow at 2.4% in 2013-14.

Structural change The industry has undergone substantial structural change since the turn of the millennium and during the past five years. Acquisitions by the big four banks in the early 2000s helped them emerge as the largest providers of financial advice. In the past five years, ANZ has moved to full ownership of ING (rebranded OnePath) and AMP has acquired the Australian and New Zealand business of AXA Asia Pacific. There have also been mergers among the banks, which have caused the industry to consolidate further. The larger players

now offer a holistic wealth management service, from advice to funds administration, management and brokerage services, and taxation and estate management. The advice side helps with the distribution of products created on the funds management side.

In the five years through 2012-13, the number of industry establishments is expected to increase at a compound rate of 2.2%. There is frantic consolidation occurring among medium-size firms as they seek greater efficiencies and attempt to increase their adviser numbers.



Opposing argumentscontinued

The effect of legislation on advisor numbers is one of the most hotly debated topics. Industry players have claimed that close to 7,000 advisor jobs will be lost in the next couple of years, and added that Australians will be worse off as a result. Contrastingly, Count Financial stated that since implementing a fee-for-service

model profit has shot up, and more pieces of advice have been given. Also dampening fears of mass job losses was a recent Rice Warner report into the proposed changes that stated that by 2016-17 advisor numbers would actually be higher with FOFA reforms, as the full benefits are felt.

Scaled versus holistic Scaled advice is advice pertaining to only a specific product or limited scope of products, for example insurance or superannuation. Holistic advice is advice on the entire scope of an individual’s financial situation. Of the 16,989 estimated advisors in the industry, only about 2.0% are providers of scaled advice. This is expected to rise to 10%-15% by 2017-18. This is largely due because holistic advice is expected to cost far more than scaled advice under the new fee-for-service framework. Many individuals will not be able to afford a fee in the range of $2,500 to sit with an

advisor who is an expert on a wide range of financial products. Scaled advice can be more efficiently provided, as an advisor needs only be trained in specific products, and can also more accurately meet the needs of the individual in regards to a particular area of their finances. Financial institutions such as insurance or superannuation specialists are expected to expand advisor numbers to provide advice to clients pertaining to a specific area. Due to the relatively low cost of scaled advice, demand is expected to grow when the new fee structure is implemented.

Opportunities and threats

Regardless of whether various forecasts of the effects of FOFA turn out to be accurate or not, the shift in regulatory framework will undoubtedly present both significant opportunities and threats. The expected increase in demand for scaled advice presents an opportunity for dealer groups and financial institutions to train specialist advisors with specific knowledge of an area of personal finance. Being perceived as an expert will be advantageous for a brand that wishes to gain a dominant presence in a niche area of the market.

Another opportunity is presented in the area of customer satisfaction, and consumer perception of the moral standards of financial advisors. Rice Warner’s in-depth analysis of FOFA reforms stated a satisfaction level of 71% for people who have seen an advisor. Additionally, many people who have never seen an advisor, and potentially some 29% who have, perceive them as being unethical and unaffordable. An

opportunity lies in the new fee-for-service remuneration structure as it is more transparent and upfront, and removes much of the conflict of interest that was deemed to have existed with a commission structure. FOFA reforms will allow industry perception to change and satisfaction to go up.

As with any period of change, threats exist to current industry players. IBISWorld expects industry competition will intensify in the next couple of years as industry players fight hard for what is expected to be a short-term decline in demand. Competition will also come from accountants, who will enter the industry

Competition between firms to extend and retain their client base will see a decrease is upfront fees



Opportunities and threatscontinued

subsequent to new laws regarding the licensing of accountants that wish to provide services relating to SMSFs.

Transferring pricing structures to the new fee-for-service system will be a difficult period of change for many companies and individual advisors. In some instances a completely new angle will need to be taken to create business. Additionally, the characteristics and skill sets required of a pre-FOFA advisor will differ from those of a FOFA-compliant advisor, and new training will need to be implemented by companies or undertaken by advisors. This period of adjustment will be hard for small and mid-size businesses that do not have the resources to cover potential losses incurred while the business adjusts.

Companies that already have FOFA compliant procedures or those that have partially adapted will have a significant advantage. To succeed in the industry once FOFA has been implemented, financial institutions, dealer groups and individual advisors will be competing more than ever on price. To succeed, an attractive pricing structure must be constructed, an example being offering the client the option to pay off their upfront fee over two or three years. Given the intensifying competition, efficiency in training, technology and administration processes will also be paramount to success. As always, quality advice is crucial, as this ultimately leads to more ongoing clients and the generation of more business.

Uncertainty remains Many planners and investment advisers will be unsure about how much people are willing to pay for their services. IBISWorld expects that the industry will remain in a growth stage of its life cycle and that revenue will continue to grow. However, the new remuneration model is largely untested and may face scrutiny and uncertainty from a public that already finds the system complex. The fee-for-service model will force clients to suffer more in the short term, or suffer a greater out-of-pocket expense, while offering benefits in the long term. This presents both a threat and an opportunity to industry players.

Industry players will need to come up with attractive pricing structure, such as payment plans over two or three years as opposed to a one off out-of-pocket expense anywhere from $200 to $2,500. In terms of public acceptance of the structure, two important factors should be noted. Firstly, several industry players including the largest major player, AMP, have already moved most of their business to a fee-for-service model, and no drastic declines in business have been incurred thus far. Count Financial, now

owned by CBA, has also adopted the FOFA-friendly model. Indeed, Count boasted that rapid growth in profit achieved in 2010-11 was due to the new pricing model adopted.

In addition, a fiduciary duty will aim to put a stop to conflicts of interest arising between the needs of the client and the needs of the adviser. The biggest financial institutions have been increasing their market shares of the wealth management market through acquisitions. As a result of this consolidation, the ties binding financial advisers, product providers, investment platforms and investment managers are becoming tighter. According to a Roy Morgan report, in 2009 the six largest institutionally owned dealer groups placed an average of 73% of their sales of superannuation products with their own parent company. If a fiduciary duty for financial advisers is introduced, it may put pressure on these relationships. Although advisers will not be required to base their recommendations on an assessment of every single product available on the market, they may be required to search beyond their



Uncertainty remainscontinued

approved product lists, which normally feature the products of the aligned product provider.

Profitability in the next five years is extremely hard to predict. As price will become a more critical basis for competition, it is possible that profit will

be squeezed as firms attempt to lock in business and clinch market share. Nonetheless, IBISWorld expects profit for the next five years will improve on that achieve in the previous five, and forecasts profit will average 37.8% in the five years through 2017-18.

Super opportunities The value of superannuation assets is expected to grow at a compounded annual rate of 10% over the next five years, closing in on $3.0 trillion by 2017-18. As a greater proportion of an individual’s income is placed into super, demand for scaled advice relating to superannuation will grow.

Self-managed superannuation funds (SMSFs) present another growth opportunity, as they are a complex, highly regulated product. SMSFs

currently hold about 30% of all superannuation assets, and this proportion is growing rapidly. ATO statistics show that in the five years through 2010-11, the number of SMSFs grew 8.2% per annum, while total SMSF assets grew 15.4% per annum. Although SMSFs generally have low expenses, it is estimated that they spend a high percentage of these costs on financial advice. This suggests that SMSFs present a growth opportunity for the industry.


Industry PerformanceThe industry is facing a period of restructuring and further consolidation

The market for financial advice has the potential to grow

The level of funds under advice shows long-term growth

The number and complexity of financial products available to retail investors is increasing

Life Cycle Stage


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DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Growth Industry

Revenue grows faster than the economyMany new companies enter the marketRapid technology & process changeGrowing customer acceptance of productRapid introduction of products & brands

Life Insurance

Financial Asset Investors

Finance

Superannuation FundsInvestment Banking & Securities Brokerage

Financial Planning and Investment Advice



Industry Life Cycle The financial planning and investment advice industry is relatively young, and still sits in a growth phase of its life cycle. Assets under advice and advisers numbers are growing, as are the number of dealer groups. However, when assessing an industry’s life cycle a 10-year period is looked at, with the current year sitting in the middle of that period. With FOFA legislation soon to be implemented, the Financial Planning and Investment Advice industry sits on the cusp of a significant shift in regulatory framework that will undoubtedly have various unpredictable affects, and it is therefore extremely difficult to forecast industry performance over the next five years. Much consolidation has occurred in the industry, with many small and medium-sized firms being acquired by large financial institutions. That being said, IBISWorld expects that while the figures may not reflect such a phase, it is estimated the industry will remain in a growth phase throughout the 10 years through to 2017-18.

The ongoing development of the industry is supported by demographic trends. The population is ageing, living longer and having fewer children, thus increasing the importance of retirement savings. The inflow of new funds into superannuation assets is expected to continue to increase given demographic trends and legislative requirements, which will support industry growth. The range and complexity of financial products available continues to expand, increasing the need for financial advisers. Currently, only about a third of Australian adults use the services of a financial adviser. There is potential to expand the delivery of services, particularly to lower income households.

The industry is adopting a broader approach to financial advice. Wealth management encompasses a range of services including financial advice, estate planning, tax management and portfolio administration. The industry is consolidating as larger firms attempt to increase the number of financial advisers within their distribution network. Increased use of online services and licensing requirements are providing economies of scale in the industry, encouraging this consolidation. Financial planners and investment managers are in high demand, however, industry employment is expected to be hit hard by FOFA reforms. Job advertisements for advisors and planners have dipped. Major player ANZ has been among those already cutting advisor jobs. It is difficult to total advisor numbers over the next 2 years, but in the five years through 2017-18, numbers are expected to rise, while revenue per advisor will grow.

Industry value-added, used to measure an industry’s contribution to the overall economy, is forecast to grow at a compounded annual rate of 3.6% in the 10 years through 2017-18. This is favourable compared to GDP, which is forecast to grow at 2.4% over the same period. This indicates the industry’s contribution to the economy is growing, and is typically indicative of a growth industry. The next five years is forecast to be slow for the industry largely due to the implementation of FOFA reforms, which will shift the way the industry operates. In many ways the next five years will be incomparable to the previous 5. It is not inconceivable that these shifts could bring about such a change that the industry moves into a mature phase.

This industry is Growing


Products & Services The industry has traditionally played a dual role, acting as a service to consumers as well as a distribution arm for providers of financial products. Regulatory changes and moves from within the industry have seen a shift toward greater focus on the consumer and eliminating conflicts of interest, primarily via increased use of fee-for-service compensation models rather than commission-based structures. Fee-for-service compensation can be based on an hourly rate or, more commonly, a proportion of funds under advice (FUA).

Scaled adviceAdvice on individual components, or scaled advice, tends to be provided in

the context of a client’s overall financial situation. For example, advice given on superannuation will often be influenced by the client’s non-superannuation investments, income, tax and family situation. Tax planning and estate planning (under the ‘other’ segment) are two other important services provided by financial advisers. Most advisers are not qualified accountants or lawyers, but can provide advice on benefits of insurance, methods of estate transfer during life and issues related to generation-skipping transfer tax. For taxes, advisers can help with tax diversification strategies, such as property investment utilising negative gearing.

KEY BUYING INDUSTRIES

K7340 Financial Asset Investors in Australia Asset investors (both individuals and businesses) seek financial planners when allocating assets for investments.

K7412 Superannuation Funds in Australia Individuals seeking to allocate funds into superannuation (both retail and institutional investors) seek advisory services from this industry.

K7512 Investment Banking & Securities Brokerage in Australia Firms from this industry seek investment advice when performing initial public offerings or merger and acquisition activities.

KEY SELLING INDUSTRIES

K7300 Finance in Australia Financial planners provide services either as institutional representatives or as independent financial advisers.

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

Supply Chain

Products and services segmentation (2012-13)

Total $4.4bn

34.3%Superannuation

and retirement advice

26.8%Investment advice and management

21.3%Self-managed super

fund advice

10%Other

7.6%Tax advice



Products & Markets

Products & Servicescontinued

Tax advice, in turn, can link advisers to a mortgage broking-type roll, whereby advising on property investment as a form of tax minimisation leads to offering a range of mortgage options. This falls under the investment advice and management segment. Negative gearing and property investment are also growing in popularity as a greater proportion of high income earners seek out financial advisers to minimise tax. Tax advice as a segment of overall industry revenue grows along with the overall industry fairly steadily, as it is usually delivered in conjunction with other product advice, or as part of an overall financial plan.

Planning for retirementIn most cases financial planners provide a holistic financial planning service to clients, making it difficult to isolate the individual components. Nonetheless, it is estimated that over half of the industry’s services are directly related to saving retirement planning via superannuation. As the population ages and more people allocate income for their retirement, superannuation FUA is increasing. Many superannuation funds offer financial advice and planning services to fund members. Some funds offer both in-house and outsourced planning services by providing a list of recommended external planners that meet strict requirements. Others use in-house planners, but outsource the licensing and dealership services to an existing planning group. Some establish joint ventures with licensed planners and employ advisers who are authorised under the planner’s licence. In addition, many advisers offer insurance advice through insurance products linked to superannuation funds, including life, total permanent disability (TPD) and income protection. This segment of the industry is expected to have grown over the last five years, as the average super fund balance has grown, and the Federal Government has encouraged self-sufficient retirees with superannuation-friendly tax schemes and co-contributions.

Self-managed super funds (SMSFs) are

growing in popularity. This has led to increased demand for advice from financial planners on how best to manage them. SMSF clients tend to be relatively big spenders on financial advice. A 2008 report by AMP suggested that the average annual level of financial advice fees per SMSF was about $4,500. In 2011, the Australian Taxation Office SMSF Statistical Report stated that the value of an SMSF account is, on average, 20 times that of a regular superannuation account, highlighting the high net worth of clients adopting an SMSF. In addition, a self-managed super fund is a highly regulated and complex product; most people adopting such a product will require ongoing financial advice in order to effectively manage it. As interest in SMSFs increases, advice on these products will grow at a quicker rate than overall industry revenue, thus growing its share of total revenue.

Master funds and wrap accountsA master fund allows investors to pool funds in several underlying investments (usually wholesale managed funds) and access a selection of fund managers. A wrap account allows clients to set up a portfolio of investments that are held in the client’s name. An estimated 80% of total retail investment money in Australia enters the market through platforms (master funds or wraps). The benefit of the types of accounts is that it allows a portfolio of investments to be centralised, saving time and costs, while also providing a diverse range of investment options. A financial planner will generally advise the use of these accounts for those reasons. In a master fund, a trustee or responsible entity holds investments on the client’s behalf. There are typically fees for joining, exiting, and making transactions, as well as management and administration fees.

There are a large number of master funds and wrap accounts distributed by financial institutions, such as banks and wealth management firms. Investors usually need to go through a financial adviser to access these platforms. Each


Products & Markets

Major Markets According to a report issued by ASIC in 2010, between 20%-40% of people use a financial adviser. Of these, most use an adviser for occasional as opposed to ongoing advice. Of those using an adviser on an ongoing basis, the average age of the client was 51 years. The most likely groups to have approached financial planners or advisers are those aged 35 and over who were separated; those aged 35 and over who were single, with or without children; and those aged 35 and over who were married without children.

Financial advice and planning for one’s future is less of a reality to those aged in their 20s or 30s, and it is considered a problem for tomorrow. As people age, income rises, people wish to begin planning for a family or large investment such as a house, and retirement becomes more of a reality.

An October 2008 ANZ Survey of Adult Financial Literacy in Australia found that 34% of respondents had consulted a financial planner or adviser about their finances. A 2011 ASIC report

DemandDeterminants

The major driver of demand for financial advice over the past five years has been the increasing number of individuals seeking advice on superannuation matters and the significant increase in funds placed in superannuation. In turn, this has been driven by demographic factors and superannuation legislation. Like most developed countries, the average age of the population is increasing, resulting in growing numbers of people approaching retirement age with an accumulation of wealth. This has increased demand for financial planning in general. There has also been a raft of superannuation legislative changes introduced by the government, beginning with the mandatory increase in superannuation contribution in 2002-03 and followed by further changes providing incentives for individuals to increase their superannuation savings.

Another factor affecting demand is the level of household income available for investment, which affects the level of

demand for investment advice, especially by retail investors. A fall in disposable income can reduce the amount of savings available for investment and thus reduce the need to seek advice.

The complexity and range of investment markets and products affects the demand for specialised investment advisory services. There are currently several thousand different investment products from which retail investors can choose to invest. Consumer awareness also has an effect on the demand for investment advice. As people become more aware of the need to plan their finances, the need arises for the services of investment advisers.

Products & Servicescontinued

of these investment platforms may benefit the clients of financial advisers through lower transaction costs and centralised management of investments providing consolidated information on account and transactions. Essentially, they are an administration tool for simplifying and managing one’s investments, and often offer a

discounted entry into a managed fund.Over the past five years, the popularity

of master funds and wrap accounts has continued to grow as more investors wish to have control over their assets while not having to worry about the administration side of investing. Thus, this segment has grown as a share of total financial advising fee revenue.

The increasing number of individuals seeking advice on superannuation matters has driven demand


Products & Markets

International Trade Exports and imports are not applicable to the industry.

Major Marketscontinued

on financial literacy suggests this figure has increased to 37%. This survey found that those most likely to have approached a financial adviser were either approaching retirement or recently retired. Of respondents aged between 55 and 69, 48% had consulted a financial adviser. As superannuation becomes a bigger proportion of the average person’s overall asset portfolio, those closer to retirement will have a larger and larger investment portfolio.

Those on higher incomes are more likely to use an adviser. Households with an income of $100,000 or more, or individuals with a personal income of $80,000 or more were most likely to use the services of a financial adviser. Industry operators are attempting to change the assumption that only those who already have money can benefit from an adviser, and this initiative is likely to see more low-income earners seeking financial advice.

Major market segmentation (2012-13)

Total $4.4bn

58%Households with

income below $100,000

42%Households with an income of

at least $100,000



Products & Markets


TAS2.0

WA10.8

QLD17.0

VIC25.8

NSW34.2

NT1.0

SA6.7

ACT2.5

Employment (%)

Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable

Business Locations 2012-13


Products & Markets

Business Locations In general, financial planning and investment advice establishments around Australia are expected to be located near major business and financial hubs, areas of high population density and areas with a high level of household disposable income. The head offices of investment advice firms are primarily major banks, insurance offices and investment managers located in Sydney and Melbourne, but these offices support dealer groups located nationally.

New South Wales is believed to have the highest number of financial planners in Australia. This can be attributed to the head offices of many advisory firms being located in Australia’s financial hub (Sydney), and the population and disposable income attributed to this state. In 2009-10, Sydney households had a mean net worth of $766,700, above the average for all Australian households of $720,000. Victoria is thought to be the next largest state with 25.8% of total industry employment. Similar to New South Wales, Victoria has a strong financial hub with many of the country’s leading financial planning and

banking operators having a strong presence in the state.

Western Australia and Queensland are growing in popularity as a source of revenue for advisors. The mining boom has seen Western Australia become one of the wealthiest states, second only to Victoria in net worth.

Perc

enta

ge

40

0

10

20

30

WA

ACT

NSW N

T

QLD SA TA

S

VIC

Employment Population

Distribution of employment vs. population



Market Share Concentration

The top four operators in the industry are estimated to hold a combined market share of about 39.1%. This indicates the industry has a low level of concentration; however, as moderate concentration is defined as 40% to 70% market share for the largest four players, the industry is bordering on being moderately concentrated. The industry will soon fall into the moderate band as consolidation continues.

The top seven firms have a total market share of over 53.8%. They all have between 700 and 2,000 financial advisers. These top seven firms include three of the big banks. Most of these firms operate financial planning operations under their own name, and own separately branded dealer groups.

The industry is predominantly structured in the form of dealer groups, or financial advisory networks. Dealer groups may be affiliated with a larger financial institution such as a bank or wealth management business. The dealer network provides the financial planners who are part of the group, with a range of support services including the management of compliance and regulatory matters, administration, provision of product research and information technology. Affiliated dealer groups provide their clients with access to the master trust or wrap platforms of the group with whom they are affiliated. Large institutions may have a large number of affiliated dealer groups, or may own financial advisory firms trading under a different brand name but offering their products.

Concentration within the industry has been increasing mainly through the process of acquisitions and mergers.

Industry consolidation is being driven largely by the economies of scale achieved by having larger numbers of financial planners within the same dealer group. The industry is consolidating as larger financial institutions increase the distribution of their financial products through larger dealer groups and cross-sell financial products. The various changes in industry structure, likely to result from the reviews into the financial advice and superannuation system currently underway, may favour larger institutions. Prior to the financial crisis, a shortage of qualified financial planners was also driving consolidation. It was easier to increase numbers through the purchase of an existing financial network than by organic growth alone.

Over the past few years, more mergers and takeovers have taken place between the largest industry players. The takeover by Westpac Bank of St George Bank was completed in December 2008 giving the merged entity about 1,400 financial advisers. In November 2009, ANZ entered the wealth management industry as a significant player when it moved to full ownership of ING Australia. Prior to this, ANZ had a 49% interest in ING Australia Limited, a joint venture established in 2002. ING has been renamed OnePath, and now operates as ANZ’s Australian wealth management business. IOOF Holdings acquired Australian Wealth Management, Centrepoint Alliance acquired PIS, and in a major industry shake-up, NAB’s acquisition of AXA was blocked and AMP ended up diving in and acquiring AXA, in the process become the largest planner and advisor in the country.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation

Level Concentration in this industry is Low


Competitive Landscape

Cost Structure Benchmarks

There are a variety of structures under which financial advisers operate. These arrangements involve different cost structures and methods of remuneration. However, more strict regulation relating to FOFA legislation has been focused on advisor remuneration, which will become more uniform across the industry as a result.

Financial advisers may be self-employed in their own practice with no affiliation with any other organisations. Financial advisers may also operate a practice, which is affiliated or in partnership with a larger financial organisation (i.e., part of a dealer group). In this instance, the practice may receive a share of the revenue it generates and be

Key Success Factors Ability to effectively communicate and negotiateThe ability to effectively communicate with clients and negotiate a better fee structure with financial product suppliers is crucial.

Must have licenceCompliance with ASIC licence requirements is necessary.

Having a loyal customer baseFor retail advisers, a strong referral client base is necessary to build up a strong client base for return on investments.

Having a good reputationHaving a good reputation will attract potential investors.

Market research and understandingResearch support from the head office must be strong and reputable for the investment advisers to rely on.

Qualified work forceStrong qualifications, in-depth experience, good product knowledge, access to a strong research base and strong marketing skills are invaluable.

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

Sector vs. Industry Costs

■ Profi t■ Rent■ Utilities■ Depreciation■ Other■ Wages■ Purchases

Average costs of all industries in

sector (2012-13)Industry costs

(2012-13)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

100

13.4

0.18.7

75.7

1.1 0.20.937.4

30.6

27.0

2.03.0




Basis of Competition There is competition in the industry between financial advisers for clients, and between the distributors of financial products or platforms for financial advisers to distribute their products.

Competition by financial advisers for client funds is based on reputation; fees; additional advisory services; the quality of investment product research; the number of products available; portfolio management and margin lending;

distribution channels; and marketing. Independent financial advisers compete on the basis of their independence. They are not tied to any particular products and so can offer clients a greater range of products. Financial advisory firms that distribute a particular platform of products may compete on the basis of reputation, returns and lower cost access to wholesale funds provided by that platform.

Cost Structure Benchmarkscontinued

provided with a variety of support services such as training and marketing from the dealer group. In turn, the practice is responsible for some or all of its own costs. Alternately, financial advisers may be employed directly by an organisation. In this case, the adviser may be remunerated with a fixed wage and bonus.

Wages constitute the largest single expense in the industry, representing an estimated 30.6% of industry revenue. The revenue generated by financial and investment planning firms is largely reliant on the number of financial planners employed. Although salaries in the industry have been increasing due to a shortage of qualified financial planners, wage costs generally have been falling as the industry benefits from greater economies of scale. Wages are an area that may change significantly when new reforms come into place within the industry, shifting the commission-based fee structure to a fee-for-service structure. IBISWorld anticipates that this will put added pressure on industry operators to offer low prices to clients as they will have to pay out of pocket as opposed to losing a percentage of their investment.

Other operating costs in the industry include professional indemnity insurance, compliance costs and product research, rent and utilities. From 1 July 2007, professional indemnity insurance became compulsory for the industry. This insurance protects licensees from bearing the full cost of compensation claims of retail clients and reduces the risk that

compensation claims will be unmet due to a lack of financial resources. Larger dealer groups may be able to negotiate professional indemnity insurance to provide greater coverage and at a lower rate than smaller or independent planning practices. Product research provides information on the large range of investment products available. Most product and asset research services are provided by research houses such as Van Eyk, Lonsec, Morningstar and Mercer.

Depreciation, predominantly for IT-related assets, represents 2.0% of income. There can be high fixed IT costs in the industry, with costs as a percentage of revenue falling as the size of the dealer group increases. IT costs include the cost of internal audit and compliance software, and client asset management platforms, such as master trust and wraps platforms. Often the cost of the administration platforms used by a dealer group is borne by the platform provider.

Industry profitability, as measured by earnings before interest and tax (EBIT), has increased healthily in the last couple of years Profit is estimated to average 30.3% over the five years through 2012-13, but is forecast to end 2012-13 averaging 37.4% for the year, comfortably above the five year average. The financial crisis, while crippling for the industry at the time, provided an opportunity for growth. Advisers and planners enjoyed an increased demand for their services as many Australians realised the risk they were facing by not having a sound financial plan.

Level & Trend Competition in this industry is Medium and the trend is Increasing



Barriers to Entry Barriers to entry in the industry relate predominately to licensing conditions and achieving scale to be able to compete.

To operate in the industry, a financial adviser must either hold an Australian Financial Services (AFS) licence, or be an authorised representative of an AFS licence holder. The AFS licence application requirements and ongoing licence conditions make it costly for an individual to obtain such a licence, and in most cases the licence will be held by a body corporate.

The industry is predominately structured as dealer groups, with a corporate entity holding the AFS licence and providing a range of services to the financial planners operating in the group. The services and equipment

required to operate a financial advice business include meeting compliance and licensing requirements, having access to administrative and investment product research services and IT requirements including client asset management software. It is generally

Basis of Competitioncontinued

There is also competition between the suppliers of investment products for the funds of financial adviser clients. Distributors of different wrap and master trust products compete for the assets under advice of financial advisers. Competition for funds is based partly on the number of financial advisers distributing the product. Increasing the number of financial advisers distributing an investment product may be achieved by increasing the number of financial advisers directly employed, acquiring existing advisory or wealth management firms, or increasing the number of dealer groups with which there is a distribution agreement.

With the industry having experienced a shortage of qualified financial planners, there is also competition between financial institutions and dealer groups to attract financial planners. Dealer groups compete for staff on the basis of the support services provided to planners. In August 2007, AXA Asia Pacific announced that, as part of its goal to attract new financial planners, it would provide its planners with professional indemnity insurance at a level 50% lower than the average industry rate. Other methods used to attract and retain

financial advisers to a dealer group include the level of support, research and education provided.

Competition for the business of financial advisers may be based on the size of commissions paid to financial advisers for placing their client funds in a particular product. There may also be non-money rewards and recognition, based on the volume of business a financial adviser attracts.

While the commission model is the more traditional method of remuneration in the industry, FOFA legislation will leave this structure all but dead within the industry, with fee-for-service become the required remuneration model. In this model, fees are based on either a fixed fee for the service provided, or a fee for advice charged by the hour. As the industry embraces and fine tunes the fee-for-service approach, which provides greater transparency in pricing, the fees charged for investment advice are expected to become a greater point of competition. The recent fall in the return on funds under management may emphasise the importance of fees to some clients, increasing the importance of financial adviser fees as a point of competition.

Barriers to entry checklist Level

Competition MediumConcentration LowLife cycle stage GrowthCapital intensity LowTechnology change MediumRegulation and policy HeavyIndustry assistance None


Level & Trend Barriers to Entry in this industry are Medium and Steady



Industry Globalisation

The provision of financial advice is dominated by the large Australian banks and their dealer groups. The top seven players in the industry are all ASX-listed companies based in Australia.

Some of the domestic players in the industry have shown an interest in providing financial advice and planning services overseas, particularly in the Asia Pacific region where assets in pension funds are expected to grow strongly.

Professional Investment Services, one of the largest financial advisory firms in Australia and owned by ASX-listed Centrepoint Alliance, has almost 1,000 authorised representatives located in Australia and also has operations in New Zealand, Singapore and Malaysia. Some of the larger banks, such as NAB and ANZ are also diversifying into overseas markets, such as Central and South East Asia, and New Zealand.

Barriers to Entrycontinued

considered that dealer groups need to have at least $60 million to $80 million under advice to justify the cost of holding a separate AFS licence. This provides a significant barrier to new entrants operating on a small scale.

Many dealer groups are associated with large financial institutions. These large institutions have advantages entering the market due to their existing

resources, distribution networks and brand name recognition. For example, BankWest has announced plans to launch a new financial planning business, recruiting 100 financial planners over three years and operating from existing BankWest branches. Recently mortgage brokers and accountants have shown an interest in gaining the required qualifications and entering the industry.

Level & Trend Globalisation in this industry is Low and the trend is Steady


Player Performance Established in 1849 as the Australian Mutual Provident Society, AMP is now a diversified financial services company mainly focused on wealth management. It provides financial advice and services like encompassing superannuation, insurance, banking and savings and investment products, as well as funds management. Demutualised in June 1998, AMP services mainly the Australian and New Zealand markets, with international offices conducting investment management activities.

In March 2011, AMP completed the acquisition of the Australian and New Zealand businesses of AXA Asia Pacific Holdings. At the time, AXA was estimated to hold over 8.0% market share in the Financial Planning and Investment Advice industry, thus providing a substantial boost to AMP’s market share and growing the combined entity larger scale of the big four banks in the broader wealth management sphere. The combined entity has a network of over 4,000 planners and advisers, the largest in Australia.

Financial performanceDuring 2010, AMP moved to a fee-for-service system in delivering financial advice. AMP’s revenue ended 2011 below the level of five years prior, having declined at an annualised 8.6%. Over the period, the company suffered significant losses as a result of the market downturn. It posted a loss of over $1.0 billion in

Major CompaniesAMP Limited | Westpac Banking Corporation | Australia and New Zealand Banking Group LimitedCommonwealth Bank of Australia | National Australia Bank Limited | Other

Major players(Market share)

54.0%Other

AMP Limited 15.9%

Westpac Banking Corporation 8.2%

Australia and New Zealand Banking Group Limited 7.8%

Commonwealth Bank of Australia 7.2%National Australia Bank Limited 6.9%


AMP Limited – fi nancial performance

Year*Revenue ($ billion) (% change)

NPBT ($ billion)

Assets ($ billion) (% change)

2006 14.23 18.7 1.67 97.97 14.6

2007 11.00 -22.7 1.31 105.31 7.5

2008 -10.96 -199.6 -1.09 86.75 -17.6

2009 10.92 199.6 1.23 89.83 3.6

2010 7.66 -29.9 0.88 91.61 2.0

2011 5.68 -25.8 0.67 110.29 20.4

*Year end DecemberSOURCE: ANNUAL REPORT

AMP Limited – fi nancial advisory fee income

Year*Sales

($ million) (% change)

2007 166 21.2

2008 157 -5.4

2009 150 -4.5

2010 165 10.0

2011 433 162.4

2012** 468 8.1

*Year end December **EstimateSOURCE: ANNUAL REPORT AND IBISWORLD

AMP Limited Market share: 15.9%


Major Companies

Player Performance Westpac Banking Corporation is an Australian publicly listed banker, and is one of Australia’s big four banks. Westpac is involved in a full range of banking and financial services, including consumer banking and corporate banking, asset financing, wealth management and insurance. In December 2008, Westpac acquired St George Bank, combining the second- and fifth-largest banking players. The consolidated entity now employs over 38,000 staff across over 1,200 retail branches nationally, serving more than 10 million customers, and is a powerhouse in wealth management. BT Financial Group is Westpac’s wealth management arm, which includes its financial planning and investment management activity.

BTFG performanceThe merger with St George has boosted Westpac’s financial planning revenue and has led the company’s market share in the Financial Planning and Investment Advice industry to increase quite significantly. The global financial crisis

weighed on post-merger growth, however, as the advice business was affected by weak investment markets resulting in lower trailing commission, while consumers withdrawing from risky investments saw a fall in income from new sales. Over the longer term, however, the wealth management space is considered a growth area as the population ages, driving increased activity in saving and investing for retirement.

IBISWorld estimates that in the five years through September 2011-12, BTFG

Player Performancecontinued

2008, as investment losses outweighed fee revenue. AXA Asia Pacific similarly faced heavy investment losses and recorded negative revenue in 2008.

AMP’s financial advisory fee revenue skyrocketed by 162.4% in 2011, due almost entirely to the AXA acquisition. In the five

years through December 2012, IBISWorld estimates fees from financial advisory will grow at a compound rate of 25.9%, which is, unsurprisingly, far above the industry average. The result is that AMP has become dominant in the Financial Planning & Investment Advice industry.

Westpac Banking Corporation – fi nancial performance


NPBT ($ billion)


2005-06 21.66 14.1 4.55 299.58 12.5

2006-07 25.94 19.8 5.15 377.65 26.1

2007-08 33.46 29.0 5.22 439.68 16.4

2008-09 35.31 5.5 6.10 589.59 34.1

2009-10 39.22 11.1 8.04 618.28 4.9

2010-11 43.02 9.7 7.67 670.23 8.4

*Year end SeptemberSOURCE: ANNUAL REPORT AND IBISWORLD

BTFG – non-interest income

Year* Revenue (% change)

2006-07 1,113.0 N/C

2007-08 1,096.0 -1.5

2008-09 1,285.0 17.2

2009-10 1,475.0 14.8

2010-11 1,572.0 6.6

2011-12 ** 1,666.3 6.0

*Year end September **EstimateSOURCE: ANNUAL REPORT AND IBISWORLD

Westpac Banking Corporation Market share: 8.2%


Major Companies

Player Performance Australia and New Zealand Banking Group Limited (ANZ) is a publicly listed Australian company, established in Melbourne in 1835 as the bank of Australasia. ANZ provides a range of banking and financial services, including personal banking, business banking, investment banking, funds management and wealth management.

ANZ entered the wealth management industry as a significant player when it moved to full ownership of ING Australia in November 2009. Prior to this, ANZ had a 49% interest in ING Australia Ltd, a joint venture established in 2002. ING began operating as ANZ’s Australian wealth management business. The acquisition of ING cost $1.76 billion.

ING Australia becomes OnePathIn the investment advice arena, ING Australia provided a broad range of financial products and services through a network of professional advisers and financial institutions, including banks and advice groups. Millennium3 is among the largest dealers’ groups, with

over 600 financial advisers. Prior to its acquisition by ANZ, ING had about 1,400 aligned financial advisers. In August 2008, ANZ announced it would be rebranding the ING wealth management businesses OnePath.

Between 2007-08 and 2010-11, ANZ’s wealth management business grew from $441 million to $1.31 billion, thanks to the acquisition of ING and the aggressive expansion of the OnePath business. Unsurprisingly, ANZ has outperformed the industry as a whole, although as with many of the largest


will have grown non-interest income at a compound rate of 8.4%. As is a common trend within the industry, consolidation at the top has seen

Westpac amidst the larger financial service providers gaining industry market share through mergers and acquisitions.

Australia and New Zealand Banking Group Limited – fi nancial performance


NPBT ($ billion)


2005-06 25.51 19.8 4.40 300.89 11.2

2006-07 30.25 18.6 5.87 392.77 30.5

2007-08 36.55 20.8 4.52 470.29 19.7

2008-09 29.54 -19.2 7.38 476.99 1.4

2009-10 31.00 4.9 6.60 531.74 11.5

2010-11 35.38 14.1 7.67 594.49 11.8


ANZ (Wealth Management segment) – fi nancial performance

Year*Revenue


2007-08 441 N/C

2008-09 347 -21.3

2009-10 1,139 228.2

2010-11 1,310 15.0

*Year end SeptemberSOURCE: ANNUAL REPORT

Australia and New Zealand Banking Group Limited Market share: 7.8% Industry Brand Names OnePath


Major Companies

Player Performance The Commonwealth Bank of Australia (CBA) is a publicly listed Australian company, and the largest of Australia’s big four banks in terms of income. It provides a full range of financial products including retail, business and investment banking, insurance, broking services and funds management. The CBA was listed on the ASX in September 1991.

CBA operates in the Financial Planning and Investment Advice industry through its Wealth Management division. The division has become highly globalised in recent years, with 55% of revenue now sourced overseas. Within the division, the company operates Colonial First State, CFS Global Assets Management and CommInsure. These companies make up the Commonwealth Financial Planning subdivision, which has more than 700 advisers nationwide and over 100 specialist dealership support staff. Colonial First State provides product packaging, administration, distribution and advice to retail customers. Colonial First State does not charge any fees for providing financial product advice. Revenue is generated from placing clients in particular investment products. Fees for Colonial’s FirstChoice Wholesale product

are based on a percentage of assets invested. Colonial produces about 700 financial plans each week.

In October 2008, CBA announced the takeover of BankWest and St Andrew’s Australia. At the time, BankWest had about 55 advisers spread across the west and east coasts, providing financial advice based on its Advice in a Box model, which was launched in June 2008. The CBA also owns the Financial Wisdom dealer group with over 400 financial advisers and about $9.0 billion


industry players, organic growth is hard to measure given the scale of inorganic growth. IBISWorld estimates that ANZ’s wealth management segment will

continue to outperform the industry in 2012-13 thanks to the bank’s large retail presence and horizontal business sourced from banking customers.

CBA – Wealth Management segment – non-insurance related income

YearRevenue ($ billion) (% change)

2007-08 2,259.0 23.6

2008-09 1,745.0 -22.8

2009-10 1,824.0 4.5

2010-11 1,975.0 8.3

2011-12 1,888.0 -4.4

2012-13* 1,925.8 2.0

*EstimateSOURCE: ANNUAL REPORT AND IBISWORLD

Commonwealth Bank of Australia Market share: 7.2%

Commonwealth Bank of Australia – fi nancial performance

YearRevenue ($ billion) (% change)

NPBT ($ billion)


2006-07 33.17 16.1 6.54 440.15 19.2

2007-08 37.05 11.7 6.26 487.57 10.8

2008-09 39.43 6.4 6.45 620.37 27.2

2009-10 41.79 6.0 8.19 646.33 4.2

2010-11 46.39 11.0 9.06 667.90 3.3

2011-12 47.19 1.7 9.96 718.23 7.5

SOURCE: ANNUAL REPORT AND IBISWORLD


Major Companies

Player Performance National Australia Bank Limited (NAB) is an ASX-listed international financial services organisation that provides a range of financial products and services. The group is organised around three regional businesses: Australia, United Kingdom/Europe, and New Zealand. Services include the retail bank brands, wealth management services and transactional and custodial operations.

NAB operates in the industry predominantly through its MLC & NAB Wealth division. NAB acquired MLC for $825 million in October 2009, and subsequently became a major player in the wealth management game. MLC and NAB Wealth own and operate the financial services licence for the company, and MLC also provides infrastructure and services to NAB Financial Planning, which provides financial advice to NAB customers. This division offers a wide range of integrated services including investments, superannuation and insurance solutions to retail and corporate markets, and business platforms and support for financial advisers. NAB’s wealth management

business consists of NAB’s financial services and fund management operations with MLC and its subsidiaries. MLC was acquired from the Lend Lease Group in June 2000.

NAB had about 1,550 financial advisers, either employed or acting as agents, and over 5,000 staff in total. MLC also holds relationships with more than 3,000 independently owned and licensed advisers. NAB is actively trying to boost its adviser numbers, and in 2010 opened the Advice Business School to recruit and train advisers and planners.


in funds under advice.In December 2011, CBA finalised its

acquisition of accountant-based financial advisory firm Count Financial for $60 million, and this is expected to take total adviser numbers for CBA to over 1,850. After a strong performance in 2010-11, the Count business said it owed the strong performance to the fact that most of its business was run via a fee-for-service pricing model, and stated it is poised for a smooth transition once FOFA reforms come into effect. It is likely this will make the transition easier for Commonwealth’s Wealth Management division as a whole, giving it an advantage over those late to adapt to the new regulatory framework. Despite uncertainty in the industry, CBA has continued to expand aggressively, adding 24 new advisors in June 2012 alone.

During 2011-12 CBA acquired a 37% stake in financial advisory firm Countplus

Limited, valued at $57 million.

Financial performanceCBA has seen non-insurance related income from its Wealth Management business shrink since peaking at $2.26 billion in 2007-08. Poor market conditions resulting in record consumer savings and sheepish investors have led to decreased demand for wealth management services. Additionally, CBA has made some acquisitions but not to the extent seen by its larger industry counterparts. CBA has thus relied more heavily on organic growth, which has been hard to come by. IBISWorld estimates that in the five years through 2012-13, CBA will have seen non-insurance related revenue within its Wealth Management business shrink at a compound annual rate of 3.1%, a poor performance compared to the industry, resulting in decreased market share.

National Australia Bank Limited Market share: 6.9%

NAB (MLC & NAB Wealth) – fi nancial performance

YearRevenue


2008-09 N/C N/C

2009-10 1,512 N/C

2010-11 1,486 -1.7

SOURCE: ANNUAL REPORT


Major Companies

Other Companies Centrepoint Alliance Limited Estimated market share: 4.5%Professional Investment Services (PIS) was acquired by Centrepoint Alliance Limited during 2010-11 for $84.3 million, and has continued operating as Centrepoint Wealth, a division of the merged entity. PIS has one of the largest networks of accountants, financial advisers and life insurance brokers in Australia. The company obtained a Dealer’s Licence on 6 August 1996, and its Australian Financial Services Licence on 8 December 2003. In 2010-11, the company had about 900 financial advisers, down from over 1,400 a year earlier, with numbers dropping after the sale of overseas operations in Hong

Kong, China and part of its New Zealand business. The company has reported significant advisor losses in 2011-12, as major industry shake-ups and uncertainty on the future of financial advice have caused many to seek alternate career paths.

In September 2009, PIS reached agreement with ASIC to settle a class action regarding compensation for financial advice given by PIS to clients to invest in Westpoint. ASIC alleged that PIS, in providing such advice, was negligent and breached the conditions of its Australian financial services licence. The settlement was reached without any admission of liability by PIS.

Over 2010-11, following the merger


NAB owns the retail investment platforms MasterKey and Navigator and provides employee superannuation services through Plum Financial Services. In November 2009, NAB acquired an 80.1% interest in the GoldmanSachs JBWere private wealth management business. In October 2009, NAB acquired the Aviva wealth management business, which included the Navigator platform and Business Super.

Financial performanceIn 2008, NAB completed the transition for NAB Financial Planning to a fee-for-advice structure for all new clients. NAB was first among the major players to do

this. As at 2011, NAB Financial Planning had about $116.1 billion in funds under management, and total cash earnings of $609 million. Funds under management were up $31 billion from the year prior, after declining in the two previous years.

In the last few years, NAB Wealth has struggled due to declining insurance income and subdued investment margins. NAB has made no major acquisitions recently and the Wealth division is expected to see declining revenue for 2011-12. Within the Financial Planning and Investment Advice industry, NAB is expected to have more or less held their market share steady over the last two to three years.

National Australia Bank Limited – fi nancial performance


NPBT ($ billion) (% change)


2005-06 38.23 3.9 7.28 10.0 484.78 14.7

2006-07 44.92 17.5 7.83 7.6 574.22 18.4

2007-08 34.38 -23.5 4.57 -41.6 656.80 14.4

2008-09 37.47 9.0 4.98 9.0 654.12 -0.4

2009-10 38.31 2.2 5.68 14.1 689.46 5.4

2010-11 40.57 5.9 6.73 18.5 753.76 9.3



Major Companies

Other Companiescontinued

with Centrepoint, PIS experienced higher than average adviser related claims, close to twice that incurred in 2009-10, and the company made a significant loss. 2011-12 claims were also high, again predominantly relating to advice provided before the PIS acquisition. Centrepoint has stated that it expects this to continue into the near future as these claims relate to advice given before the financial crisis, but the business should return to profitability within the next few years. As profit declined in 2011-12, remaining in negative territory, revenue from advice services also dropped. IBISWorld expects that in order to repair its underperforming wealth business, Centrepoint may need to refocus and restructure, likely losing some market share in the process.

IOOF Holdings Ltd Estimated market share: 3.3%On 30 April 2009, IOOF Holdings Limited merged with Australian Wealth Management Limited (AWM). AWM is a leading provider of wealth creation products and services in Australia. AWM operates under brands including Bridges Financial Services, Perennial Investment Partners Limited, Australian Executor Trustees, Spectrum Super, Pursuit and Ord Minnett. IOOF operates in the industry through its Financial Advice and Distribution division.

The combined company offers a range of financial services including advice, distribution, funds management, administration, trustee services and asset management, and operates in the industry through its Financial Advice and Distribution division. Before being

acquired by IOOF, AWM had made more than 30 acquisitions and significantly increased its size through merger activity. In May 2008, AWM announced it had acquired 70% of Ord Minnett Holdings Limited (JPMorgan retained its existing 30% holding). Ord Minnett has wealth management operations with a high net-worth private client base and a national adviser network. The acquisition increased adviser numbers from 300 to 470. In June 2011, IOOF acquired financial advice firm DKN Financial, and added 700 advisers to its ranks, which now measure over 1,000.

Financial performanceRevenue from financial advice grew 16.2% in 2011-12, largely being inorganic growth. In 2011-12, IOOF made 12.9% of total company revenue from its Financial Advice and Distribution division, up from 10.6% a year earlier. This figure has been rising, growing significantly subsequent to the acquisition of AWM, and is expected to grow further with the addition of DKN Financial. The group’s Funds Under Management, Administration, Advice and Supervision (FUMAS) was $106.2 billion as at 2011-12, and this figure is also rising. Pre-tax profit has been steady and solid over the last couple of years, at 13-15%.

Solid performance in the advice division has seen IOOF grow its market share within the industry. Although still well short of competing with AMP and the larger banks, IOOF is growing an extensive network of brands and investment platforms and remains a key industry player.


Capital Intensity The capital-to-labour ratio in the industry is about 1:15.3, meaning for every dollar spent on capital, $15.30 is spent on wages. The trend is downward, after the capital-to-labour ratio measured 1:16.7 in 2007-08. Productivity in this industry depends not only on capital expenditure but also on the attributes of the financial adviser. Financial advisers who are experienced and have been operating in the industry for a period of time tend to have greater amounts of funds under advice and higher levels of productivity. However, industry regulatory changes and increased investment in online investment platforms have reduced the average wage and decreased reliance on face-to-face distribution.

The industry is labour intensive with wages accounting for a high proportion of revenue. Labour expenses include the wages, salaries and benefits paid to professionals and administrative staff.

There are also labour costs associated with ongoing training and professional development. FOFA reforms have brought about significant changes to the way in which advisor wages are paid. Fee-for-service will soon replace volume-based and commission

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

ur In

tens

ive Capital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Life InsuranceFinancial Asset Investors

Finance

Superannuation Funds

Investment Banking & Securities BrokerageFinancial Planning and Investment Advice

Level The level of capital intensity is Low

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COM.AUDotted line shows a high level of capital intensity

Capital units per labour unit

Financial Planning and Investment

Advice

Finance and Insurance

Economy


Operating Conditions

Technology& Systems

The industry uses sophisticated software to manage client accounts and the administrative functions involved in transactions related to thousands of different investment products. Revenue is received in the industry from sources such as commissions paid by investment product providers and trailing commissions calculated as a percentage of FUA on an ongoing basis. Software packages are required to calculate and administer these revenue streams.

A financial planner may have several hundred clients receiving advice on a once-off or ongoing basis. Basic administrative tasks related to servicing these clients will be undertaken by appropriate office software. The industry is moving towards a fee structure that includes fees based on hourly rates. This will introduce more time management and recorded keeping software.

A shortage of qualified financial

planners has been a long-running issue for this industry. In 2007 AMP launched a financial planning academy to train new financial planners and paraplanners. The 14-week course has three intakes a year and allows about 30 students to participate each time. The academy started in Sydney, but has since been extended to most other states. For the May 2009 intake AMP received about 1,800 applications, up on the previous year. AMP recruits new planners from those completing the course.

With the impending introduction of FOFA reforms, current estimates show that the average wage of advisors is going to decline, as is industry profitability; at least in the short term. In the coming years, investment in information technology systems is expected to be of paramount concern to dealer groups as well as individual advisors, as efficiency gains are sought across the business model.

Capital Intensitycontinued

payments, and IBISWorld expects this will result in wages declining as a percentage of revenue.

The increasing use of master trust and wrap platforms over the past decade has diminished the amount of administrative work required of individual advisers to manage client’s accounts. These administrative platforms are capital intensive and require ongoing investment to meet expanding client needs, incorporate new financial products and allow for regulatory changes. Most dealer groups outsource their platform and other IT requirements to product and platform

providers. The cost for the use of these platforms is normally paid for by clients, who are charged an administration fee (often calculated as a percentage of assets invested through the platform).

The industry provides customised advice to clients, which normally involves personal consultation, at least at an initial visit. Despite this, there is a trend for the increasing use of the internet and customer call centres to provide services to clients with small amounts of funds under advice. This is likely to increase the capital intensity of this industry and also provide increasing economies of scale.

Level The level of Technology Change is Medium



Regulation & Policy The regulatory regime under which financial advisers operate is currently under the spotlight. Much of this attention is coming from the Parliamentary Joint Committee’s Inquiry into Financial Products and Services in Australia. The terms of reference for this inquiry include licensing arrangements, the role of advisers, and the role of commission arrangements and appropriateness of advice provided to consumers. As such, the recommendations arising from this inquiry have the potential to generate major changes in the industry.

The Australian Securities and Investments Commission (ASIC) is also conducting a review of the governance,

efficiency, structure and operation of Australia’s superannuation system (the Cooper review). The review is part of a project to improve retirement savings and, among other issues, will look at superannuation advice, conflicts of interest and the level of fees and costs associated with superannuation.

Current regulationsCurrently, firms providing advice need to either hold an Australian Financial Services Licence (AFSL) or be an authorised representative of a licence holder. Generally, most people entering the industry will be authorised representatives of a licence holder. The Corporations Law sets out the

Revenue Volatility Revenue is derived from the fees and commissions charged for the services provided by the investment adviser to the client. A large part of these fees is based on the value of FUA. The value of FUA in turn depends on the inflow of new funds, and the value of existing funds. Revenue can fluctuate, therefore, with changes in stock market performance both domestically and globally, changes in interest rates, other asset prices and investor confidence.

There are a very large number of different investment products in which

clients funds can be placed. These products have a range of investment strategies, levels of risk and exposure to different asset classes. The current volatility in revenue in the industry (with strong revenue gains followed by two years of decline) is due in part to the severity of the current downturn. In this instance, the value of nearly all assets such as global and domestic equities, commodities, real estate etc has fallen. Normally, the diversity of investment strategies and products would cushion the level of change to the overall value of FUA.


Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualised revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

Financial Planning and Investment Advice

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level The level of Volatility is Medium

Level & Trend The level of Regulation is Heavy and the trend is Increasing



Industry Assistance There are no tariffs or industry assistance applying to the industry. However, the Federal Government’s aim to increase savings among individuals can be regarded as indirectly assisting the industry. For example, Australia’s mandatory superannuation contribution, which rose from 3.0% in 1992 to 9.0% in

2002, has increased the demand for investment advice.

The Financial Planning Association of Australia is a professional organisation representing the financial planning sector in Australia. It has about 10,000 members, 8,500 of which are licensed financial advisers.

Regulation & Policycontinued

requirements an AFSL holder must meet.An AFSL has ongoing compliance

requirements. All licensed providers are required to have in place relevant compliance systems (e.g. for risk management, training of authorised representatives and dispute resolution systems where applicable). Licensees are required to be accountable for their agents’ and employees’ conduct.

Financial advisers must have a reasonable basis for the advice and recommendations they offer, and this advice must be appropriate for the client’s need. Advisers must manage any conflicts of interest. ASIC has introduced minimum training requirements that all authorised representatives must meet if they want to provide financial product advice.

Future of Financial Advice (FOFA) legislationRequiring financial advisers to meet a fiduciary duty of care to clients has been a major concern for ASIC and received some support from industry operators. FOFA legislation requires advisers to act in the best interests of their clients and give priority to clients’ interests ahead of their own. The introduction of a fiduciary style duty would directly address some of the current conflict of interest concerns.

Under the legislation, which will come into effect July 2013, a fee-for-service remuneration model for financial advice

is mandatory and volume-based payments have been abolished. This has been deemed to result in a fairer appraisal of a client’s finances. There appears to be widespread support for abolishing trailing commissions, although the mechanism for achieving this varies from industry self-regulation to legislative action.

There also appears to be general support for increasing the educational requirements that must be met by financial advisers. FOFA is expected to encourage a greater level of understanding of financial products and result in more scaled advise, or advise in a specific area or on a specific product suite.

Industry initiativesThe Financial Planning Association of Australia (FPA) has issued to its members a Code of Ethics, which came into effect on 1 July 2009. The code covers general standards of conduct to be observed by financial planners. These requirements include integrity, objectivity, competence and fairness. The code also includes an obligation on members to put their clients’ interests first.

The FPA has also proposed that financial advisers adopt a fee-for-service model, which excludes advisers receiving remuneration from product providers. This would apply from 2012 onwards and would apply to FPA members only.

Level & Trend The level of Industry Assistance is None and the trend is Steady


Key StatisticsRevenue

($m)

Industry Value Added

($m) Establishments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

2003-04 3,724.8 2,224.1 5,108 2,656 13,894 -- -- 1,687.5 N/A2004-05 4,809.3 2,727.8 5,268 2,687 14,382 -- -- 1,743.9 N/A2005-06 5,238.7 2,880.0 5,531 2,821 14,934 -- -- 1,793.5 N/A2006-07 5,534.6 3,295.7 6,057 2,879 16,112 -- -- 1,865.7 N/A2007-08 4,999.4 2,738.3 6,327 3,057 16,640 -- -- 2,005.0 N/A2008-09 4,031.4 2,281.1 6,250 2,950 16,500 -- -- 1,706.0 N/A2009-10 4,115.0 2,691.3 6,548 3,042 16,993 -- -- 1,456.7 N/A2010-11 4,201.4 2,962.0 6,921 3,125 17,522 -- -- 1,407.5 N/A2011-12 4,388.0 3,163.7 6,901 3,206 16,989 -- -- 1,369.1 N/A2012-13 4,412.7 3,001.8 7,052 3,214 16,249 -- -- 1,350.3 N/A2013-14 4,518.6 3,197.3 7,161 3,222 16,794 -- -- 1,355.6 N/A2014-15 4,776.1 3,520.3 7,299 3,332 17,256 -- -- 1,389.9 N/A2015-16 5,019.7 3,698.6 7,672 3,397 17,667 -- -- 1,455.7 N/A2016-17 5,275.7 3,828.3 7,756 3,365 17,628 -- -- 1,498.3 N/A2017-18 5,434.0 3,884.0 8,045 3,341 17,770 -- -- 1,537.8 N/ASector Rank 15/19 10/19 4/19 3/19 9/19 N/A N/A 10/19 N/AEconomy Rank 202/528 108/528 86/528 122/528 177/528 N/A N/A 129/528 N/A

IVA/Revenue (%)

Imports/ Demand

(%)

Exports/ Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2003-04 59.71 N/A N/A 268.09 45.30 2.72 121,457.05 0.202004-05 56.72 N/A N/A 334.41 36.26 2.73 121,259.11 0.242005-06 54.98 N/A N/A 350.80 34.24 2.70 120,097.50 0.252006-07 59.55 N/A N/A 343.52 33.71 2.66 115,798.56 0.272007-08 54.77 N/A N/A 300.44 40.10 2.63 120,492.79 0.222008-09 56.58 N/A N/A 244.33 42.32 2.64 103,393.94 0.182009-10 65.40 N/A N/A 242.16 35.40 2.60 85,723.53 0.212010-11 70.50 N/A N/A 239.78 33.50 2.53 80,327.59 0.222011-12 72.10 N/A N/A 258.28 31.20 2.46 80,587.44 0.232012-13 68.03 N/A N/A 271.57 30.60 2.30 83,100.50 0.212013-14 70.76 N/A N/A 269.06 30.00 2.35 80,719.30 0.222014-15 73.71 N/A N/A 276.78 29.10 2.36 80,545.90 0.242015-16 73.68 N/A N/A 284.13 29.00 2.30 82,396.56 0.242016-17 72.56 N/A N/A 299.28 28.40 2.27 84,995.46 0.242017-18 71.48 N/A N/A 305.80 28.30 2.21 86,539.11 0.24Sector Rank 4/19 N/A N/A 17/19 4/19 17/19 11/19 10/19Economy Rank 37/528 N/A N/A 304/528 97/528 457/528 106/528 108/528

Figures are inflation-adjusted 2013 dollars. Rank refers to 2013 data.

Revenue (%)

Industry Value Added

(%)Establishments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)2004-05 29.1 22.6 3.1 1.2 3.5 N/A N/A 3.3 N/A2005-06 8.9 5.6 5.0 5.0 3.8 N/A N/A 2.8 N/A2006-07 5.6 14.4 9.5 2.1 7.9 N/A N/A 4.0 N/A2007-08 -9.7 -16.9 4.5 6.2 3.3 N/A N/A 7.5 N/A2008-09 -19.4 -16.7 -1.2 -3.5 -0.8 N/A N/A -14.9 N/A2009-10 2.1 18.0 4.8 3.1 3.0 N/A N/A -14.6 N/A2010-11 2.1 10.1 5.7 2.7 3.1 N/A N/A -3.4 N/A2011-12 4.4 6.8 -0.3 2.6 -3.0 N/A N/A -2.7 N/A2012-13 0.6 -5.1 2.2 0.2 -4.4 N/A N/A -1.4 N/A2013-14 2.4 6.5 1.5 0.2 3.4 N/A N/A 0.4 N/A2014-15 5.7 10.1 1.9 3.4 2.8 N/A N/A 2.5 N/A2015-16 5.1 5.1 5.1 2.0 2.4 N/A N/A 4.7 N/A2016-17 5.1 3.5 1.1 -0.9 -0.2 N/A N/A 2.9 N/A2017-18 3.0 1.5 3.7 -0.7 0.8 N/A N/A 2.6 N/ASector Rank 15/19 17/19 6/19 7/19 19/19 N/A N/A 19/19 N/AEconomy Rank 381/528 499/528 90/528 237/528 512/528 N/A N/A 437/527 N/A

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.

CAPITAL/LABOUR INTENSITY An indicator of how much capital is used in production as opposed to labour. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3-$8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using 2012-13 as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the ‘real’ growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the Australian Bureau of Statistics’ implicit GDP price deflator.

DOMESTIC DEMAND The use of goods and services within Australia; the sum of imports and domestic production minus exports.

EARNINGS BEFORE INTEREST AND TAX (EBIT) IBISWorld uses EBIT as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding tax and interest.

EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.

ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.

ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.

EXPORTS The total sales and transfers of goods produced by an industry that are exported.

IMPORTS The value of goods and services imported with the amount payable to non-residents.

INDUSTRY CONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.

INDUSTRY REVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).

INTERNATIONAL TRADE The level is determined by: Exports/Revenue: Low is 0-5%; Medium is 5-20%; High is over 20%. Imports/Domestic Demand: Low is 0-5%; Medium is 5-35%; and High is over 35%.

LIFE CYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.

NON-EMPLOYING ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.

VOLATILITY The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees of the establishment.

Industry Jargon

IBISWorld Glossary

ASSETS UNDER ADVICE The value of the assets for which financial advisory services are provide.

FUNDS UNDER MANAGEMENT The value of funds placed for investment purposes with a fund or portfolio manager.

INVESTMENT PLATFORM Investment platforms allow investors to hold and manage a portfolio of investments.

Disclaimer

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the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Pty Ltd. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication – in papers, reports, or opinions prepared for any other person – it is agreed that it will be sourced to: IBISWorld Pty Ltd

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