FNB’s hidden asset management titan 

FNB’s Wealth and Investment division has shown strong growth in recent years by cross-selling its products to existing bank clients, and it has big plans to disrupt the asset management industry. 

South Africa’s oldest bank is looking to reinvent itself as a fully integrated financial services provider by offering its clients a complete set of products, from transactional banking to insurance and asset management.

While its parent, FirstRand, has played in this game for a while through RMB and Ashburton Investments, FNB is increasingly looking to offer all these products in-house. 

 FNB Wealth and Investments CEO Bheki Mkhize told Daily Investor that this is part of the competition between local banks to remain ‘front-of-wallet’ for clients. 

Offering complete solutions for individuals is increasingly valuable, and as more South Africans open multiple bank accounts, the competition is to be the primary account. 

One way to do this is to offer solutions for clients across the board and lock them into a particular ecosystem where a bank can benefit from their growing balance sheets. 

Asset management is a particularly attractive and lucrative part of being a full-service financial institution, Mkhize said. 

This business not only reduces the reliance of a bank on lending, which is extremely sensitive to interest rates but also offers higher-quality earnings. 

In comparison to traditional banking activities, asset management is capital-light and has a high return on equity. 

Mkhize explained that once you have completed your upfront investments in systems and capacity, you will need very little extra capital to grow the business. 

Furthermore, the earnings volatility in the asset management business is relatively low compared to banking and is thus deemed higher quality. 

Mkhize said this, combined with asset management being capital-light, enables banks to grow their margins and return on equity sustainably. 

As a result, the asset management business has become increasingly attractive to banks, with both FNB and Standard Bank making large inroads in the sector. 

Crucially, both these banks have large client bases, which they can leverage to cross-sell their investment products. 

FNB Wealth and Investments currently has around 10% of the banking clients investing using its products, with a higher penetration of 14% among wealthier individuals in the private banking segments. 

These make up the majority of the division’s customer base, and there is plenty of room to grow within the bank’s existing clients. 

One of the major hurdles, Mkhize said, was the existing relationships many of its clients already have with other asset managers. They may also have independent financial advisors who have historically advised them about other products. 

To overcome this, FNB is leaning toward its advantage as a full-service financial institution and integrating financial advice on both sides of an individual’s balance sheet. 

“The whole aim is to advise clients on both sides of their personal balance sheet,” Mkhize explained. 

This means that clients will be offered services from transactional banking, lending, insurance, and investment products through a single touchpoint. 

“We want to integrate these into one conversation, and this is resonating well with clients so far,” he said. 

This can be seen in the division’s results for the past financial year, with assets under management up by 14% to R84.8 billion. 

In total, including assets under advice, administration, and execution, the division has R354 billion under its umbrella. 

Investment accounts grew by 7% to 672,000, with a particularly strong showing from its number of active share trading accounts. 

Mkhize said this performance was driven by improved market performance, particularly in the latter part of the financial year. 

Flows into its products, whether it be exchange-traded funds or unit trusts, remained strong, albeit limited by the disposable income of South Africans coming under pressure. 

Mkhize expects the division’s growth to continue for the foreseeable future as more of FNB’s banking clients engage with its products and the bank drives its integrated strategy. 

Currently, it is not focused on winning over clients from outside FNB’s pool, but in the future, it will compete with traditional asset managers. 

Mkhize believes its offering is good enough to make substantial inroads into the industry as it can compete across all market segments and offer products that traditional asset managers cannot. 

As FirstRand deepens its presence in Africa, FNB’s Wealth and Investments portfolio will expand on the continent, and the early signs are that there will be significant demand for its offering.