Yes, the banks will come back to advice – on their terms
The major banks may have lost billions of dollars in their last foray into financial advice but a Financial Newswire roundtable panel has agreed that that the banks will re-enter on the back of more generous legislation around the provision of general advice.
(JJ) Jaime Johns – General Manager, Madison Financial Group
(PHD) Paul Harding-Davis – General Manager, Advice IQ
(IS) Indy Singh – Executive Chairman, Fiducian
(MR) Matthew Rowe – Chief Executive, CountPlus
(DS) Darren Steinhardt – Chief Executive, Infocus Wealth Management
(DT) Don Trapnell – Director, Synchron
(CK) Craig Keary – Chief Executive, Asia Pacific, Ignition Advice
What we do know about the banks is that they’ve typically got a large number of customers and those customers have needs and the banks are recognising that they do need to provide some sort of assistance and guidance to their customers.
I think that assistance and guidance will be very different to what we would call the advice model today dealing with more complex needs and I think time will tell but I think it will require a different solution and that they will swim in a different lane to the traditional advice businesses that exist today.
But if you look at it today it’s hard to see where a bank can’t be providing basic advice or guidance to their customers in some way shape or form.
I have a view that the banks will look to provide tools, particularly around budgeting.
When I was in practice, one of the regulator conversations I had was that you could only create wealth if you were spending less than what you were earning so the banks because they have a data-rich environment around that will look to provide tools and I think they will look to provide some pretty simple quasi-advice solutions around super and lending and debt.
Where they got themselves into trouble is that they underestimated the level of bespoke advice needs that people have got so I think they’ll provide tools and get people underway with skills and budgeting and education standards but then at a particular point of time when people look to interact with an adviser their needs will be different – they’ll have gone through divorces, they’ll have young families and I just don’t think banks are geared up to operate in that space at scale.
I just don’t think the banks will get back into it or if they do it will be a very brave chief executive who puts the balance sheet back in play around financial advice after what they’ve been through.
I think the next couple of years will probably drive the timing decision of if they come when they come back and what it looks like.
They’ve stayed in private banking, many of them, and I think if they come back they will be waiting for the timeliness of simplification of limited advice, limited scoped advice or the digital advice delivery.
I think, at that point, where it is a simplified model – a self-service model almost like where you end up with a loan or bank deposit – I think they may come back in at some point.
But I agree with Matthew that as soon as you get to that mid-tier where it’s a little bit messy and you actually need professional guidance and support because of the blended family or because you might have a small business or you might also have to plan for retirement, those situations I don’t think they’ll jump back in.
So I think it is the timeliness of when they come back because I think they will be back at some point because there is no way that they can’t when everything connects to their environment around debt – it’s just a matter of at what point that they come back in.
Banks won’t own comprehensive advice
Banks are a part of the wealth industry as are we all but I don’t think they are the natural owner where comprehensive advice is provided but I do think they are the natural owner of the bits of advice which can be provided by an algorithm.
I think there will always be a degree of connectivity with the banks but as to what that looks like I don’t know. They got out for a reason and before they get back in they’ve got to look at what the environment looks like and are the commercial opportunities there to justify wading back in.
I think they’ll always be there but as to how they’ll be there I think it will take a couple of years before we find out.
I think it would help if there was some segregation of advice and informational guidance and that informational guidance was for simplistic such as budgeting.
Advice is advice and you either give it or you don’t give it my view.
As far as I am concerned I never cared about the banks because their objective certainly wasn’t about providing advice, their objective was to get clients as customers. We have clients and that’s the relationship.
Banks still don’t seem to have worked it out – I mean ANZ brought all that stuff for $7 billion and dumped it for $3 billion – who is paying for all this stuff?
I know the banks have all these high-end advisers dealing with the ultra-high-net-worth clients but the sad part is they are falling off the cliff but still hanging by their nails and it surprises me because they’ve thrown in the towel and yet they are hanging onto these few people and, as Matthew said, will they be able to provide the resources?
They’ve thrown in the towel in principal and I really don’t know and I don’t know if they’ll provide the resources when the crunch comes to really give full support – compliance, risk management and the like.
So my view is that they should get out. As a policy, they’ve already gotten out so they should get out.
Banks will fight, scratch to get back
I think the banks’ fundamental problem is that at their core what they do really well is transactions – trillions a year – and 99.99% are right. They do it really well.
But advice of almost any kind is not a transaction – there might be a product transaction to be done later because of the advice – but it’s a secondary outcome to the advice.
I think, culturally, banks were doomed in advice because their culture is driven by transactions.
But the banks will be back in one form or another because they want to sell products and transact products and I agree completely that where they add value is with the data and the tools.
When you look at the FSC whitepaper you can see they’ve tried to open the door to a different type of advice so they can sell a product that has limited advice attached to it and, to me, that was the purpose of the whitepaper.
Call me cynical, but they’ll be back. They’ll fight, scratch, claw and spend millions on finding a way where they can deliver advice around the sale of a product and they’ll never leave the ultra-high-net-worth market. They’ll always want to give advice in that space.
The reality is the banks didn’t leave the market because they were told to leave. The Hayne Royal Commission didn’t say vertical integration was the wrong thing and they should get out of advice.
They were simply unprofitable. They couldn’t make a quid out of it because they were trying to match Darren Steinhardt, Indy Singh and Matthew Rowe – they were trying to match our business model when they clearly couldn’t do it with staff that are uninvested in the process.
A lot of people turn around and say banks should never have been in advice because of vertical integration but there is nothing wrong with the vertical integration model and there was anything wrong with vertical integration model provided the consumer knew they were buying from the bank.
You go to the Caltex service station and you expect to get Caltex petrol. If you go to the Commonwealth Bank you expect to get an adviser talking about a Commonwealth Bank product. I don’t have a problem with that.
Where I do have a problem is where a licensee is owned by a bank and that is hidden somewhere down the back of the Product Disclosure Statement (PDS) or the Statement of Advice (SOA)
Provided there is clear and open disclosure there is nothing wrong with the vertically integrated model and when we lost the banks we actually lost our beggar’s farm because once upon a time people who came into our industry came via AMP, National Mutual, Colonial Mutual and we don’t have them anymore.
Then the banks came in with their vertically-integrated models and that’s where our new blood came from. But not anymore.
I get it that our industry is getting these wonderful grads coming through but when you’ve got one-tenth of those coming in compared to those who are leaving the maths don’t add up.
Banks will come back in. They keep an eye on profit. They are not there to serve consumers. They are there to serve their shareholders so they are going to come back into the industry when they can see they can turn a profit.
They won’t come back into full service except with respect to high-net-worths via private banking but they’ll come for very simple advice where you see the teller and the teller says go and see Fred over there about your mortgage.
“They’ll probably do the strategic alliance thing a bit more than we’ve seen so far, we’ve seen the strategic alliance with AIA and the new licensee between AIA and the Commonwealth Bank.
But they’re not going to be a threat to any of the licensees here today because their market is going to be those small clients that the bank financial planner used to handle.
So will the banks come back in? Absolutely. Will the banks come back in in our space? Absolutely not.