Banking royal commission: Westpac’s Hartzer says financial planning must lift its game

Westpac boss Brian Hartzer admits banks didn’t properly think through the challenges of pushing into wealth management.

Westpac CEO Brian Hartzer arrives at the royal commission hearings. Pic: AAP

Westpac Bank chief executive Brian Hartzer says big banks underestimated the challenges in pushing into wealth management, as he called for the financial planning industry to lift its professional standards.

Appearing on day four of the Hayne royal commission’s policy round, Mr Hartzer said the big banks had “clearly not” navigated their respective wealth forays well.

“I don’t think banks fully thought through how the model needed to evolve to be consistent with being part of a service business that focuses on long-term relationships,“ he added.

“Banks just underestimated how different the models were, and how the model needed to evolve to be consistent with the way banks should run themselves.”

Westpac’s three big bank rivals are all at various stages of retreating from funds management, life insurance and financial planning.

Mr Hartzer, the outlier among his peers, has committed to its BT wealth arm but earlier this month said Westpac was considering strategic options for its financial planning unit.

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Documents were also tendered showing Mr Hartzer was initially somewhat reluctant to conduct a self-assessment demanded by the prudential regulator, because he didn’t believe the bank had the scale of issues that had entangled the rival Commonwealth Bank.

“My issue was that I was aware that the scale of the self-assessment that CBA had to do was extremely large and that it wasn’t obvious to me that we should be required to do the same level of exercise,” he said.

The Australian Prudential Regulation Authority released a scathing report on governance and compliance failings at CBA in May, after undertaking a deep dive into the bank’s processes, culture and systems.

While its list may be shorter than that of CBA, Westpac has also been embroiled in scandals in its advice business, including charging customers fees for services they never received.

Under at times heated questioning from senior counsel assisting Michael Hodge QC today, Mr Hartzer reaffirmed his commitment to having an advice business in the future, even though the unit could change in shape or size.

“To walk away from it entirely to a certain extent is to abandon our customers. So we have to work through what’s the right approach,” he said.

Mr Hartzer admitted, though, that the planning industry had to become more professional in nature.

“It should be, I think it’s moving in that direction. And I think more reform would be helpful,” he said.

Mr Hartzer again conceded that Westpac’s systems weren’t up to scratch in the area of financial advice and the bank was still assessing how much it would need to repay customers for charging fees for no service.

“I would clarify and accept that at the moment it’s catching errors and fixing them and we have more work to do to make sure things are done right the first time,” he said.

Mr Hodge prodded Mr Hartzer on the fee for no service issue, but didn’t get much further than in yesterday’s questioning.

Of $991 million in total advice fees earned over 11 years, Mr Hartzer said it was unclear how much would paid out.

For Westpac-employed advisers, the bank has set aside $117 million after assessing a fee pool of about $600 million.

Asked whether he thought financial advice would ever be affordable for ordinary Australians Mr Hartzer said: “Potentially if it is done through technology.”

By that he was referring to robo-advice, where consumers can enter details and automated systems can suggest investment options.

Mr Hartzer is the second big bank chief on the stand and will be followed by retiring Macquarie Group boss Nicholas Moore.

CBA’s Matt Comyn kicked off this round of hearings on Monday followed by his chairman Catherine Livingstone.

In his initial questioning yesterday, Mr Hartzer conceded “the economics” of owning a wealth management business were becoming challenging.

Westpac has, though, divested the bulk of its holding in funds management arm BTIM – now called Pendal.