Despite the financial services industry remaining Australia’s largest, there are still deficiencies such as a lack of women in senior management roles and a failure to maximise exports, the Financial Services Council has ruled in a new report.
The council’s 2019 State of the Industry report stated the sector now contributes $161 billion or 9 per cent the nation’s $2 trillion economy.
The report also found Australian superannuation as at 2017, gained the highest five-year returns in the developed world, with the real annual return from 2012 to 2017 being 7.5 per cent, in comparison to other markets giving an average of 3.8 per cent.
About 70 per cent of the value of the financial services industry was found to be from banking and funds management (excluding super) while the remainder is from insurance, financial markets and related businesses.
There are 10 per cent more employees in the sector than in 2017, now at 450,000.
“Financial services is the largest industry in NSW and Victoria, and enjoys one of the fastest rates of productivity growth in the national economy. Its contribution to our export economy however remains nowhere near full potential,” Sally Loane, chief executive of FSC commented.
“More could be done to maximise the potential for financial services exports with just 5.9 per cent of services exports coming from the sector. This is well below the OECD average of 12.7 per cent.”
Locally, the industry manages a small fraction of total funds of overseas investors. The review showed 5.7 per cent of investment into Australian managed funds is sourced from offshore ($126 billion as a proportion of $2.2 trillion).
The report pointed to other countries with large funds management industries having larger proportions of funds sourced from offshore, including the UK (31 per cent sourced from offshore), Hong Kong (68.5 per cent), Singapore (80 per cent) and Luxembourg (99 per cent).
Higher tax has impacted the attractiveness of managed funds to offshore investors, the FSC noted. It added if the competitiveness of non-resident withholding tax rates on Passport funds is addressed, the Australian industry has a potential to increase funds management exports.
The Morningstar Global Fund Investor Experience Report for 2017 found Australia was the lowest ranked (least competitive) country for the taxation and regulation of funds, out of the 25 countries covered in the survey. By contrast, Australia received high rankings on a number of other measures including fees and sales experience.
Additionally, while the ratio of female to male staff in the financial services industry is approximately equal, the proportions taper off in leadership roles. The report noted only 9 per cent of chief executives in the sector are female, significantly lower than the average for all industries at 17 per cent.
In key management, 29 per cent of employees were women, slightly less than the average for all industries at 31 per cent. For board directors in financial services, 9 per cent were women, the same as the average for all industries.
The financial services sector also paid $5.8 billion in industry-specific taxes in the 2018 financial year and 34 per cent of all financial tax.
Investment and funds management
The investment and funds management sector in Australia now overlooks $3.6 trillion in FUM, rising by 28 per cent from two years ago.
Managed funds were reported to be worth $2.9 trillion, around 150 per cent of the country’s GDP.
The majority of funds with Australian investment managers (54 per cent) are sourced from superannuation funds. The FSC said superannuation has been the largest component of the industry, growing faster than GDP over the long term.
Australia’s superannuation system is the fourth largest in the world, behind the US, the UK and Canada.
In super, there are now $2.8 trillion in funds under management, accounting for around 150 per cent of the country’s GDP and having grown by 72 per cent over the last five years. The sector’s FUM has increased by a third (33 per cent) since 2017.
The FSC noted Rice Warner research which expects super FUM will reach $5 trillion by June 2028, or 167 per cent of projected GDP in that year. The financial consultant also forecast that super funds will own 20 per cent of all listed companies in Australia within 15 years.
Industry funds manage around 25 per cent of the sector’s total assets, overlooking $677 billion and 55 per cent of all super accounts. Retail funds on the other hand manage 22.4 per cent or $623.4 billion.
There are 194 ETPs on the market, increasing by 24 cent from 2017 and 102 per cent during the last five years. The segment’s total market capitalisation of products sits at $47.7 billion, growing by 27 per cent, 328 per cent up over five years.
Globally, there is around $5.4 trillion invested in ETF products as of April, with the Australian market being around 0.9 per cent of that.
Passive ETFs hold a greater market share than their active counterparts, occupying 69 per cent of the number of funds and 81 per cent of total assets.
Notably, the number of AFSLs has fallen since the FSC’s last reporting period in 2017, down by 20 per cent to 2,237.
The number of active financial advisers has slightly risen in the last two years, by 5 per cent to 26,793. The FSC does expect the number of advisers may decline in the short term due to “increased regulation, new education standards, and market movements as large institutions demerge and sell their adviser groups.”
The number of advisers in large groups has declined over time, the report noted, with a slight increase of those working on their own.
The number of life insurance providers has stayed steady in Australia, with there now being 29 compared to 28 in 2017. Claims paid totalled $10.5 billion, growing by 29 per cent in two years and 68 per cent over five.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].