A large chunk of Australia's market for HNW wealth is out of wealth managers' reach because this population is used to running its own money via the compulsory pensions saving system.

Many private banking operations in Australia use a threshold of A$1 million (around $850,000) in investable assets as one of the criteria for a key market segment.

Unfortunately for the industry, a large slice of this market may be out of their reach as high net worth individuals choose to manage their funds themselves, in a pensions system actively pushed by government and regulators.

Australia’s mandatory pensions savings scheme, known locally as superannuation, is world-leading, and 15 years after its inception, Australians have a collective A$1 trillion or so squirrelled away for their retirement.

Superannuation, which requires employers to pay 9 per cent of an employee’s gross salary into a fund of their choice, has been the driving force behind Australia creating the world’s fourth largest funds management industry, with wealth management and private banking at its top end.

But as the successive governments have tweaked the regulatory regime around superannuation to make it the most tax-advantageous way of saving and building wealth, they have also sown seeds which threaten to undermine the success of the wealth management industry.

This is because a key feature of the regime is the right for people to set up their own self-managed superannuation funds, and a combination of tax breaks and a “do it yourself” philosophy among affluent people is seeing a growing number of people do just that.

Increasingly, wealthy Australians are setting up their own funds rather than stashing their nest-egg in retail products recommended by financial advisors or private bankers.

Key segment

There are now around 400,000 self-managed superannuation funds and on average they contain assets of between A$800,000 to A$1 million – precisely the sweet spot for a key segment of the private banking and wealth management industry. 

And, with government encouragement, the number of self-managed funds is growing rapidly. Over the 2007-8 financial year, around 35,000 new self-managed funds were created, equivalent to 117 for each working day.

The self-managed sector has gone from representing just over 10 per cent of all retirement savings at the beginning of the decade to more than 30 per cent today.