The financial advice minefield

Finding a sustainable way forward for embattled industry is no easy task.

The race to find a sustainable way to provide financial advice in Australia is nearing the final, ­albeit treacherous, straight as AMP’s profit results made clear.

The Hayne royal commission has ensured people are now cynical about financial advice and ­particularly planners who are tied to companies that also manufacture products.

AMP said yesterday it was undertaking a “major rethink” of the ­financial planning model, which, in chief executive Fran­cesco De Ferrari’s view, is becoming unaffordable for much of the ­market.

AMP’s total adviser or core ­licensee numbers fell to 2567 as of December 31, from 2692 a year earlier.

The buzzwords yesterday ­besides affordability were adviser quality, professionalism, productivity and compliance.

De Ferrari’s playbook also ­involves ramping up options for digital advice for customers, ­including the company’s so-called Goals 360 program that combines online and personal interaction.

He stressed several times yesterday the importance of man­aging conflicts of interest at AMP as it works through the best way ­forward for the financial advice business.

If only it were that simple.

The other complicating factor is AMP’s buyer of last resort ­regime, which is in full view as new industry education requirements and an end to grand­fathered commissions loom in a post-Hayne era.

IOOF, which has acquired ANZ Bank’s financial adviser deal groups, is also navigating the ­advice minefield, hamstrung by the fact it is in a legal battle with the banking regulator over its superannuation business.

Commonwealth Bank and ­National Australia Bank want to spin their advice businesses off, ridding themselves of most of the compliance risks and any inherent costs that come with planners in the future.

Ironically CBA’s in-house planning business — the only ­advice bit it plans on retaining — this month embarrassed the bank even further by failing to comply with a regulatory enforceable undertaking.

Westpac, the only big four bank that has committed to wealth management, is the other big listed firm that remains in the advice race.

It is still running the numbers on whether to persist or get out of financial planning.

The smart money points to Westpac exiting completely or partially divesting its financial ­advisers and withdrawing.

As The Australian revealed yesterday, Westpac is understood to be in late-stage talks with Melbourne-based Viridian Advisory on options for the bank’s financial planning group.

Sources said negotiations were advanced but a final decision for boutique group Viridian to acquire a large share of Westpac’s planners is yet to be made.

As it stands, the deal focuses on the planners that have bigger and more profitable client books.

Westpac’s financial results show it had 803 salaried and aligned planners as of September 30, down 21 per cent from a year earlier.

The key to getting a deal sealed may come down to any restrictions Westpac attempts to put on the transfer, including placing customer funds on its investment platform, Panorama.

Any strings Westpac attaches to the disposal would likely be made lucrative by the bank agreeing to refer customers to Viridian.

That fits neatly with Westpac chief executive Brian Hartzer’s underlying belief that demand for financial advice is not going away, despite the industry’s well-documented shortfalls, and banks need to be able to provide it in some way.

Consummating a commercial deal against the backdrop of the royal commission recommendations, which want to ensure ­advisers act in the best interests of customers and manage and disclose conflicts, won’t be easy.

The Hayne bible or blueprint for financial advice — with all its recommendations — will be the reference point for the industry as it looks to figure out a commercial way forward.

While commissioner Kenneth Hayne didn’t go as far as banning vertical integration, which sees ­financial services companies able to manufacture and sell their own products, the compliance safeguards he wants will also come with costs.

They include an annual review by customers of their advice ­arrangements and fees, which is now typically done every two years, and improved disclosure of any lack of independence or conflicts.

Hayne also wants the corporate regulator and government to retest and review the advice market in three years’ time.

Hopefully, by then the finish line for industry reform is well within reach.