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OPERATIONAL OVERVIEW
NEDBANK WEALTH
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ASSET MANAGEMENT, which includes:
WEALTH MANAGEMENT, which includes:
REVIEW OF THE YEARFor Nedbank Wealth 2010 has been a noteworthy year. In addition to reorganising the business to be more client-centric, significant progress was achieved against the strategy set in 2009 following the buyout of the joint ventures. This included large investments in technology and innovation as well as new product development.In the Wealth Management Division considerable progress has been made with planning the actions required to realise the objective of building a single niche high-net-worth business. This integrated offering will include estate planning, risk management, investment management, banking and philanthropy solutions and will be achieved by leveraging the existing businesses of BoE Private Clients, Nedbank Financial Planning, Nedbank Private Bank, Fairbairn Private Bank and the local and international trust and fiduciary businesses. The benefits of having an integrated and holistic client view are numerous and include the potential for enhanced risk management practices as well as improved ability to cross-sell into Nedbank. | |||||||||||||
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The BoE Private Clients Philanthropy Office was short-listed as a finalist
in the category Philanthropy Team of the Year in the International STEP
Private Client Awards 2010/2011 held recently in London. BoE Private
Clients also contributes 1% of its headline earnings to corporate social
investment initiatives, 75% of which goes towards the BoE Charitable
and BoE Educational Trust Foundations, with the remaining 25% used
to fund internal initiatives. With high-profile individuals acting as
trustees on many recipient organisations, this also serves to profile the
business within the high-net-worth segment. Supported by a reduction in lapses from 15,1% in 2009 to 10,0% in 2010 as well as an increase from 15,0% to 24,5% in the conversion ratio of leads from Nedbank Retail, the financial planning business achieved considerable growth in advice-based sales. The financial planning industry continues to be challenged with finding high-quality planners and this remains a key focus in 2011. During the period under review Fairbairn Private Bank was recognised as the Best International Bank and Best International Wealth Manager at the International Fund and Product Awards 2010 for the offshore financial services industry. Despite the difficult European economic environment, Moody’s Investors Service maintained Fairbairn’s A3/ P-2 credit rating in 2010. At a community level Fairbairn continues to support a variety of sporting, cultural and environmental initiatives, among them the annual sponsorship of the Isle of Man charity, Sailing for the Disabled, and the Fairbairn Private Bank Multisport Team (Team FPB). In 2010 Fairbairn Private Bank also donated 200 tree saplings to the Jersey Trees for Life Hedgerow Campaign. Each of these sponsorships is in line with Nedbank Group’s overall commitment to sustainability. The overseas pension scheme offered by the International Trust business enjoyed pleasing growth during 2010. The scheme, which is aimed at non-UK residents with UK pension rights, is an important source of new business for the international trust operations. In 2010 four separate asset management operations were consolidated successfully into a single Nedbank Wealth Asset Management Division offering a range of best-of-breed multi- and private client active management solutions. While international inflows remained disappointing, the domestic business attracted strong inflows across a wide spread of funds. During 2010 Nedgroup Investments won the Morningstar Best Large Fund House award and came second in the PlexCrown Survey. More recently Nedgroup Investments was placed second in the Raging Bull Awards for Best Domestic Management Company and received recognition for a number of individual funds. The year also saw the launch of the first-ever Nedgroup Investments above-the-line marketing campaign. The campaign is aimed at establishing the brand within the minds of prospective clients as well as creating awareness of the risk of basing investment decisions on emotion instead of reason. Much progress has been made in the implementation of new international and institutional strategies, which should impact favourably on the business in 2011. 
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| Nedgroup investments supports various social and educational
upliftment programmes, with 30% of service fees levied on
the Nedbank Balanced Fund donated to Childline, Habitat for
Humanity, NICOR, and Rape Crisis. At 31 December 2010 Nedgroup
Investments also had 3 767 Fundisa Unit Trust Accounts, with a total
of R9,8 million in assets under management. Fundisa, launched in
2007, is a national initiative aimed at encouraging South Africans to
save towards education. The programme rewards people for investing
in education by paying them an annual bonus of 25% of their
contributions to a maximum of R600 a year. The buyout of the balance of the shares in the former joint ventures with Old Mutual effectively removed the remaining product restrictions. The life assurance business launched 360life, a fully underwritten life product supported by a unique wellness programme called become (see case study). Product features on 360life include individual and continuous pricing, which allow an insured life to benefit from the correct price for his or her current needs. The become wellness programme is offered for free and is embedded in the 360life product range. become will enable members and their families to enhance every aspect of their life – including physical, mental, relationship, environmental and financial areas. Following the acquisition of Imperial Bank, credit life has now been extended to the Motor Finance Corporation base. In short-term insurance the product range has been expanded with a credit guarantee offering into Nedbank Namibia as well as vehicle-related value-added products including warranty, topup and tyre and rim cover. |
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In the short-term insurance industry the effects of climate change are
becoming more apparent with an increase in claims associated with
severe weather occurrences. However, in 2010 claims in the short-term
insurance business could be managed within acceptable levels.
Further work will be required fully to understand the potential future
impact of climate change on the SA insurance industry. The Insurance Broking business continued to focus on cross-selling new and existing insurance products to the wider Nedbank Group base. Attracting and retaining quality insurance advisers are still challenges in the broker industry and remain a key focus area in 2011. FINANCIAL REVIEW
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| Nedbank Wealth delivered strong financial performance in 2010,
with headline earnings of R592 million, up 17,9% on 2009 and an
ROE of 41,0% (2009: 40,9%).
On a like-for-like basis, adjusting for the acquisition of the Old
Mutual joint ventures in 2009, expense growth was well contained
at 7,2% and headline earnings growth increased by 16,6%. The
acquisition of the joint ventures delivered a return on investment
well in excess of original expectations. This performance was achieved notwithstanding the adverse impact of the unfavourable interest rate environment, particularly in the United Kingdom, as well as the strength of the SA rand. This was offset by improved lapse rates, normalised claims ratios, improved stock market levels in the latter part of 2010 as well as significant organic growth in insurance and asset management. Overall net interest income (NII) declined by 4,0% (9,5% like-for-like) as a result of the environment of low interest rates, both locally and in the United Kingdom. Non-interest revenue grew strongly by 29,0% (12,4% like-for-like) primarily on the back of the growth in the insurance and asset management businesses. Headline earnings equated to an economic profit of R388 million – up 14,5% on 2009, notwithstanding additional capital allocation. This growth is partially inflated by a client loan recovery of £2,6 million in Fairbairn Private Bank, which resulted in a favourable overall credit loss ratio for the cluster of 0,15%. The Wealth Management Division continued to be negatively impacted by low UK interest rates and the strength of the rand. These factors contributed to a decline in NII for Fairbairn Private Bank of 23,7%. BoE Private Clients maintained growth in line with inflation despite margin pressure, lower stockbroking volumes as well as subdued investment appetite. This was offset by the more favourable credit environment. Advice-based sales in the financial planning business rose by 13,9% on the back of increased planner productivity, a more favourable economic climate and closer collaboration with Nedbank Group. Significant domestic net inflows and strong fund performance contributed to a noteworthy performance from the Asset Management Division. Total assets under management increased by 17,6% to R102,6 billion. Internationally, the restructuring of the business away from alternative hedge funds of funds into the new best-of-breed range resulted in a marginal increase in assets under management, compared with net outflows in 2009. The earnings increase in the Insurance Division was driven by a notable performance in both the life and short-term insurance businesses. Continued growth in the unsecured lending businesses contributed to the increased value of new business of 57,8% and annual premium equivalent growth of 37,0%. The short-term insurance business achieved gross written premium growth of 10,2% while managing to keep claims well within acceptable levels. The business is characterised by strong risk management, significant levels of reinsurance, tight capital management and low exposure of capital to market risk. |
 In 2010 BoE Private Clients amended its credit process and policies to comply with the latest environmental legislation. A detailed environmental checklist was adopted to form part of the initial credit assessment process and to serve as an early caution for potential environmental risks presented by prospective finance recipients. The environmental sustainability enhancements to the credit policy were supported by the rollout of relevant training to lending specialists, valuators and compliance officers.  Fairbairn Private Bank remains committed to, and involved in, social, cultural and environmental sustainability initiatives. It continued its three-year partnership with Durrell Wildlife Conservation Trust in Jersey. After extending the sponsorship agreement in 2009, Durrell started a new breeding programme for the distinctive Madagascan ring-tailed lemur. In 2010 the first infant in the last 17 years was born at Durrell. This sponsorship allows the charity to develop an understanding of lemurs in order to protect them and enhance their chances of survival in the wild. |
 Nedbank Group Insurance Brokers and Nedgroup Insurance Company contribute 50c and 30c respectively per live policy to The Green Trust. In 2010 R58 000 was donated to the organisation in support of the various environmental conservation projects it undertakes. This serves to attract clients who wish to link their investments to social causes to these products.  Nedgroup Investments adopted the value of stewardship as one of the key measures against which business performance will be tracked. As an example, the investments in inhouse investment products for personal savings by executives is a measure of stewardship. An internal scorecard has been developed based on 10 key principles for measuring and tracking the degree to which the business succeeds in achieving this objective. |
 Nedbank Wealth is partnering with its life assurance clients to deliver sustainable health and wellbeing benefits through an innovative life product and wellness programme aimed at encouraging positive lifestyle choices. In 2010 Nedgroup Life launched a fully underwritten new generation life insurance product known as 360life. Unique product features of 360life include individual and continuous pricing, which allow an insured life to benefit from the correct price for his or her current needs. Unlike normal underwritten life products where the discounted pricing effect only lasts for on average two years, 360life will continue to offer clients this discounted premium of up to 20% by managing risk information on clients’ overall wellbeing. To this end Nedgroup Life also introduced a unique and holistic wellness programme, become, which is embedded in the 360life product range and, unlike many other competitor wellness programmes, is absolutely free. The programme provides clients with the motivation, assessments, tools and coaching to improve and maintain their overall wellbeing while at the same time creating a risk management tool that the business could harness to reduce claims and premiums. The programme takes a fresh approach to member wellness by means of a holistic focus on enabling members and their families to improve every aspect of their lives. A SUSTAINABLE SOLUTION TO WELLNESS By encouraging members to assess the state of their health, and then engage with the many health enhancement resources available to them, become is designed to walk members through a process of improving and/or maintaining their health and wellness. The better their progress, the greater the benefits they enjoy, not just in terms of access to benefits, but also via cashback payments on their monthly life assurance premiums. However, the true sustainability benefits of 360life and become are not the discounted premiums or financial rewards it offers, but rather the series of effective tools it affords clients to ensure their long-term health and wellbeing. In addition to a comprehensive set of informative and motivational resources that highlight the need for better health, members have access to advice and guidance from qualified health professionals in numerous fields – all with the intention of delivering real, sustainable health benefits, rather than mere loyalty incentives. |
STRATEGYNedbank Wealth sees significant opportunity through innovative product development as well as consolidating its existing multi-offerings into client-centric solutions. The focus in 2011 will include:Insurance
Asset Management
Wealth Management
LOOKING FORWARDGiven the strategy outlined above, Nedbank Wealth has strong growth and profitability prospects for the future. However, the cluster’s overall performance remains subject to a number of external market and economic influences, most notably exchange rate volatility, interest rate and stock market movements as well as credit extension within the retail sector.Despite the likelihood of continued volatility in global stock markets, normalised stockbroking volumes and moderate JSE growth into 2011 are anticipated. Optimism in this regard should be tempered by the impact of the UK austerity programme, negative endowment effects of prolonged low UK and SA interest rates, as well as reductions in new home loan volumes on the back of the new home loan strategy, which could potentially impact short-term insurance earnings. Within the insurance market further decreases in policy lapse rates are expected as affordability improves and financial pressure on consumers ease. These factors, coupled with the planned launch of a number of new insurance products, augur well in the coming years. However, as the business is changing to more complex insurance products, the effects of new-business strain and larger reserving requirements are likely to impact earnings growth in the short term.  |
