Financial advisers in exodus from big wealth managers

Financial planners are quitting major wealth managers as customers withdraw savings in the wake of the royal commission.

UBS says the trend of advisers leaving large institutions is ‘entrenched’.

Financial planners continue to depart Australia’s major wealth managers at the same time as punters withdraw their savings, as the damage wrought to the sector by the Hayne royal commission starts to mount.

Banking analysts are also putting on notice their growing expectation of more lawsuits, regulatory penalties and customer refunds.

Ahead of today’s release of the interim report of Kenneth Hayne’s inquiry into the financial system, analysts at investment bank UBS have warned the trend of advisers leaving large institutions is “entrenched”, while prospects rise of further pressure on profits.

It comes after some of the largest banks and wealth managers, such as AMP, National Australia Bank and ANZ. suffered a sharp reduction in cash flows over the March quarter.

The overall wealth management sector was hit with its first quarter of net outflows in six years.

Collectively, the sector lost $570 million in cash flows, the first quarterly loss since March 2012.

The bleeding of cash comes as billions of dollars in funds are withdrawn from for-profit wealth managers and moved to the not-for-profit industry superannuation fund sector, which emerged from the royal commission unscathed.

UBS analyst James Coghill said while there were “wider industry” issues at play, AMP was particularly susceptible to squeezed profit margins after it lowered its fees on its flagship MySuper products for the first time since inception. Mr Coghill also said this margin pressure would worsen if the royal commission clamped down on grandfathered commissions.

Mr Coghill said AMP shares were likely to tumble a further 13 per cent, leaving the stock down 50 per cent from before the royal commission began. He said AMP would have a “long and bumpy pathway to recovery”.

The downgrade came after Westpac yesterday announced a $235 million writedown in cash earnings to cover provisions for customer refunds for advice fees charged where no service was provided.

The move has stoked fears that other banks will unveil further customer-related provisions.

The Australian Securities & investments Commission expects total repayments to exceed $1 billion.

“We believe that more provisions are highly likely,” UBS analyst Jonathan Mott said.

Mr Mott said the Westpac provisions only included salaried advisers. “It does not include the investigation into advice fees and inadequate financial advice by aligned planners,” he said.

“Evidence from overseas suggests that compliance and remediation costs are rarely limited to one year and tend to escalate over time.”

Over the year through August, nearly 10 per cent of advisers at major wealth managers have left their company. This includes a 20 per cent fall in adviser numbers at Westpac and a 13 per cent fall from Commonwealth Bank and an 8 per cent drop at AMP.

Morgan Stanley analyst Andrei Stadnik said Westpac may be forced to reduce its profitability “in order to win back the support of key stakeholders”.

“We think there is growing evidence that scrutiny of conduct is leading to civil proceedings, more customer remediation and fine,” Mr Stadnik said.

Yesterday Slater & Gordon launched a class action against National Australia Bank and its wealth management business MLC on behalf of customers sold “worthless” credit card insurance, as law firms ramp up actions against major financial institutions in the wake of the royal commission.

Despite earlier this month publicly calling for expressions of interest for aggrieved customers of Commonwealth Bank’s wealth arm, Colonial First State, and those who held their superannuation with battered wealth group AMP, Slater & Gordon chose NAB to target first.

AMP was served with five separate class actions after it admitted charging customers fees where no service was given. The separate cases are expected to be wrapped into a single lawsuit.