The Australian Competition and Consumer Commission has today decided to oppose National Australia Bank Ltd's (NAB) proposed acquisition of AXA Asia Pacific Holdings (AXA), and not to oppose AMP Limited's (AMP) proposed acquisition.
"At the heart of the ACCC's decisions are concerns about innovation, and as a consequence future rigorous and effective competition between retail investment platforms," ACCC chairman Graeme Samuel said today.
The ACCC has extensively investigated both proposals over the past four months and received information from a wide range of sources, including fund managers, financial advisers and other market participants, as well as various industry research reports. In addition, the ACCC scrutinised a substantial number of internal company documents from the merger parties and their competitors.
The ACCC reviewed competition effects across a range of markets including superannuation, insurance and banking, and following extensive investigation, the ACCC did not identify any competition concerns with respect to these markets. The key focus however, was retail investment platforms which provide a central hub for investors to access a range of investment products, and allow for consolidation of client information and reporting on these assets.
The ACCC found that a merger between NAB and AXA would result in a substantial lessening of competition in the market for retail investment platforms for investors with complex investment needs. However, the ACCC found that an independent AXA or a merger between AMP and AXA would not have this effect.
The ACCC found that NAB is a significant competitor in the provision of retail investment platforms for investors with complex needs. The ACCC also found that AXA is on the cusp of delivering an innovative platform that is likely to provide aggressive competition for investors with complex investment requirements. As a result, the ACCC considered that a merger of NAB and AXA would remove competitive tension.
By contrast, the ACCC found that AMP was not a significant competitor for retail investment platforms for investors with complex investment needs.
"The ACCC concluded that because AMP does not own its own wrap platform it is constrained in its ability to compete aggressively," Mr Samuel said.
Innovation in retail investment platforms is primarily driven by financial adviser dealer groups, particularly non-aligned advisers. Functionality of the platform, and how it integrates with the financial adviser's software, is a key factor on which platform providers compete.
"Allowing NAB and AXA to merge would significantly diminish incentives to compete for retail investment platforms used by investors that have complex financial needs," he said.
In the absence of the proposed acquisition by NAB, AXA on its own or an AMP-owned AXA would continue to drive innovation, particularly with respect to platform functionality, and deliver the benefits that flow in the form of enhanced services to financial advisers and their clients.
As described above, the ACCC is aware that AXA is advanced in the implementation of a strategy to develop a low cost full function retail investment platform. The ACCC considers that this evidence increases the likelihood of AXA, or a merged AMP and AXA, competing strongly in the future.
In the absence of competitive pressure from AXA's platform, the ACCC considered that existing platform providers were either unlikely to have the incentive to drive innovation in the foreseeable future, or lacked the capacity to do so.
New entrants were unlikely to emerge because of the high barriers to entry.
"Potential entrants need significant scale and established relationships with financial advisers to justify the initial and ongoing investments to enter with a platform", Mr Samuel said.
The basis upon which the ACCC reached its decisions will be outlined in a Public Competition Assessment available in due course on the ACCC's website, www.accc.gov.au/publiccompetitionassessments.