The firm has announced a reduction in its wealth management output at a time where the sector in Australia is coming under scrutiny from a Royal Commission.

The chief executive of National Australia Bank has said that the firm will reduce its wealth management arm by 2019, by selling MLC, its financial advisory business.

This move from the firm comes after Royal Commision’s investigation into the wealth management and financial advice divisions in the Australian banking sector brought about several scandals, one of which lead to the resignation of AMP’s chief executive of Craig Meller.

Andrew Thornburn spoke to journalists, after the release of its half year results for 2018, about the split of its wealth management operation.

“We are reshaping our wealth business,” said Thornburn. “We are not exiting wealth management. We think that providing wealth advice, and wealth products and services to our clients, is fundamental to what we do. It’s just the nature of that, and the way we do it, we feel, needs to change. In terms of our key clients, we will be retaining JBWere (part of the group's business and private banking operation). We will be retaining nabtrade (the group’s online investing platform). They’re both excellent businesses and platforms – we’re going to invest in that.”

“But, when we look at MLC, you know, we feel it’s a good business, and I think with some independent ownership and greater investment, it can really be a very sustainable and growing business in the whole superannuation field. We now need to enter a very important phase of working out how that would be divested, and what shape it might be. And, we’ve identified that we think it will take through to the end of 2019 to actually divest it,” he added.

NAB confirmed that it will split off from MLC, a financial advisory firm that it has owned since 2000, through “public markets options including demerger and IPO, while maintaining flexibility to consider trade sale options”.

Despite the timing, Thornburn has said that the decision to sell MLC and downscale its wealth management segment was not due to the Royal Commission inquiry. 

“We started this work in June last year, and I think it really is consistent with our story of simplifying the bank. We announced that in November, and a big investment in the bank. We obviously hadn’t completed that work to announce it then. But, if you go back and look at our record of looking at businesses that we’ve got in our portfolio, and making sure that we retain the ones that we can invest in to grow, and allocate capital to the bank, I think it’s consistent with that story that we have had over the last three years, and certainly the simplification theme that we announced in a major way in November.”

He added: “So, we would not make a decision that’s this major based on a couple of weeks of evidence at the Royal Commission – respecting the Royal Commission’s importance. I think it’s a much, much bigger … We purchased MLC in 2000. This is a major decision of the bank, and we would not make it on the space of some noise and some shameful things that have happened.”

Results
NAB also reported that its consumer banking and wealth management arm made an underlying profit of A$1.274 billion in its half year results, ending 31 March. 

This was a year-on-year 3.8 per cent rise from A$1.227 billion in 2017. Overall, its wealth segment reported net operating profit fell 4.7 per cent, from AU$533 million in 2017 to AU$508 million.

The bank also logged that its consumer banking and wealth management segment had assets under management of A$199.4 billion, a 4.3 per cent rise from 2017. Its wealth management cost to income ratio decreased by 450 basis points in 2018, from 67.5 per cent to 63 per cent. The bank’s business and private banking segment saw its underlying profit also swelled Y-O-Y by 7.1 per cent to A$2.197 billion.