Don’t be fooled: banks will still be giving advice

The bank inquiry may have sparked a tactical retreat but the banks won’t be exiting financial advice forever.

 

Don’t be fooled … the big banks are not getting out of financial advice.

In a way they can’t: as the engine room of the financial system, they will always be in the wealth business to some degree.

What is occurring is a tactical response to the horrors unveiled by the royal commission.

Poorly regulated, greed-ridden wealth divisions have brought the banks — and AMP — to a new low in the public estimation.

It’s a genuine crisis and executive decisions are being made from what NAB chief Andrew Thorburn has described as “a burning platform”.

The most pragmatic way for a troubled bank to clean up its financial advice division is simply to get rid of it: that’s just what NAB appeared to announce earlier this week when it accompanied its half-year results with a $3 billion plan to sell MLC, the asset manager that includes 1000 financial advisers among its brands such as Godfrey Pembroke, Apogee and GWM.

On close observation, NAB quit only the “middle tier” of financial advice: in the same announcement, it said it was not selling the stockbroker and wealth manager JB Were Ltd, which specialises in “helping high net worth customers to manage their wealth”.

In other words, NAB has not stepped away from financial advice ... it’s just decided to stop trying to offer advice to everyday customers. (There is also a risk NAB may yet be halted in these plans if the royal commission moves to split asset managers from financial advisers.)

Not every bank will act the same. ANZ, for example has already sold key wealth operations to IOOF, while CBA is considering selling its much maligned Count Financial division.

Perhaps the most intriguing move may be from Westpac.

It’s worth noting that the chief executive of Westpac, Brian Hartzer, was a star at ANZ bank and then moved to Britain to take a top role at the then woefully troubled RBS bank in London.

His time there coincided with the post-GFC clean-up where the big British banks sold off their fin­ancial advice units.

Westpac CEO Brian Hartzer. (AAP Image/Peter Rae)

Here’s what Mr Hartzer said just a few days ago about that experience: “In the UK, they went very hard on this when I was there and a bunch of banks just said OK, we are out of financial planning — the consequences of that is far fewer people get financial planning who could probably use it.”

He then gave a very strong indication that WBC — which has by no means escaped censure in the royal commission (it was the bank behind the tearful story of nurse Jacqueline McDowall who had her retirement plans ruined) — will stick with the financial advice business.

“We need to find a solution that means people who need advice can get it and it’s free of conflict of interest and it is good advice and that is also cost-effective for the companies providing it,” said Mr Hartzer.

He gave the example of the person who has just inherited money and then goes to the bank — under a scenario where the bank has no general wealth advice arm, the only suggestion they will hear is to put the money in a term ­deposit.

If that happened just now at one of our banks, the rate of return would be 2 per cent — barely keeping pace with inflation.

It’s early days but it is possible already to paint a picture of financial advice in the post-Hayne commission era, assuming banks are still legally allowed to both create financial products and give advice at the same time.

Some banks, such as NAB, will try to narrow their service to very wealthy clients only, some will try to retrofit their service to something hopefully very different than what we have seen revealed in the royal commission, such as Westpac.

It is unlikely any bank will stay out of the business for very long.

Meanwhile, the planners themselves may not hang around for the changes to come through the system.

Strong boutique practices see this as their moment to widen their customer base — the sort of operations that came in at the top of The Australian’s annual Top 50 advisers list will make hay. These are companies such as Escala, Shadforth, Hamilton, Minchin Moore and GFM.

Roboadvisers such as Six Park and Stockspot are also ready to make their moves at the middle to lower end.

Even the advisers inside the banks may not wait for their masters at executive level to enact their plans.

It has been reported in recent weeks that the executive team at Godfrey Pembroke, a financial ­advice brand within MLC, is already planning to leave the bank and set up under a new independent licence.