With strong brand names, huge client bases and a renewed commitment to high-quality, fee-based advice, the Big Four banks are getting serious about making inroads into the planning business. Simon Hoyle reports.

In times of crisis or uncertainty, consumers naturally seek out things they perceive as safe. That’s why there’s routinely a rush to cash, guaranteed products and the like when investment markets are in chaos. A well-known and trusted brand name is perceived as safe – and in financial planning, it’s no different. The financial planning arms of Australia’s Big Four banks are preparing to make hay while the sun shines for them.

There’s no doubt that a strong brand name is working for the banks in the financial planning space. None of the banks has an aggressive target for increasing numbers of planners in the coming year or two. All will recruit to replace departing planners, increase numbers modestly when quality candidates present themselves, and will seek to increase the overall quality and experience of their planning networks.

They’re focused on extending their reach into existing bank customer bases. And since every client of every planner in the country is likely to have a relationship with one or more of the big banks, that represents a potential challenge to all financial planners: If the service a client currently receives isn’t up to scratch, there’s likely to be a ready-made replacement waiting in the wings.

If you’re not clear exactly how to explain and quantify the value of your service, it may pay to work that out – because the banks have. Don’t be fooled into believing the big banks intend to cater exclusively to the high-volume, low-margin, limited advice segment of the market. They’ll do that, but they’ll do more: the advice offerings being developed are sophisticated, refined and in many cases targeted at high-networth clients. And the banks are used to charging fees.

Setting competitive, up-front, transparent fee structures for financial planning services is second nature to these institutions. So they tick many of the boxes necessary for success: genuine fee-based advice offerings; extensive branch and referral networks; strong brand names; and increasingly sophisticated advisory services.

“We’ve got 385 planners and they’re basically located in all of the capital cities and major rural locations,” says Alan Logan, head of ANZ Financial Planning.

Tim Gunning, head of financial planning at Commonwealth Bank, says the institution has nine million customers and 1000 branches, and generates 4000 leads a week for its planning network. NAB Financial Planning’s Geoff Rogers says the bank has 580 planners operating on a true fee-for-service footing, and plans to increase their productivity and face-to-face time with clients through extensive back-office improvements.

And the head of Westpac Financial Planning, Mark Spiers, says the bank has “drawn a line in the sand” and instigated a structure that clearly rewards its 437 planners’ professional expertise.

ANZ’s Logan says: “We have got very broad coverage. Wherever we’ve got a sufficient branch network and customer base, planners are there.”

“The definition of a customer in a traditional bank planning sense is different from the one I would use going forward,” he says.

“Anyone we had, in the previous model, done business with, [which could include] one-off investment recommendations, they would be considered to be an existing client. But the way I am looking at the business, I wouldn’t say that person is necessarily a true client of the financial planning business going forward.

“One of the great opportunities we’ve got is that the penetration of financial planning into the broad ANZ customer base is quite low.

“We’re defining financial planning as an interaction between a planner and a client where a client is prepared to pay for a Statement of Advice (SoA) to be delivered. “We’re spending a lot of time internally in the bank, educating bankers about what financial planning is. Advice is the product; therefore how do we know whether we’re getting more and more bank customers to take our advice? We would measure that by the number of people who are prepared to pay for it, in a transparent world.

“That’s how we are simply trying to think about it.”

Logan says growth in financial planning for growth’s sake is “a paradigm that’s absolutely being challenged, and we challenge that ourselves”.

He says the aim of the planning business is to “deliver the right advice to the right client at the right price – the right price from the client’s perspective, so they can see the value in it, and the right price for the business…so we are not lossleading on it”.

“When you think about the middle part of that, the ‘right clients’, that’s about segmentation,” Logan says.

“We think we can do a lot more work in that area, so I would not necessarily see growth for growth’s sake as a ‘plan’ at all. I think the real challenge for all financial planning businesses is working out which customer segment to serve, and how to serve them, rather than taking a one-size-fits-all approach.

“I don’t expect that we’ll be growing planner numbers in the next 12 months. We’ve had a head count freeze in the business since I joined, and that’s going to continue for at least the next 12 months.”

The bank’s planners aren’t short of leads and clients to deal with, as the attraction of dealing with a large and relatively secure institution begins to dawn.

“That’s the feedback we are getting from cus- tomers who are doing business with us right now,” Logan says.

“They are very concerned, and they like the fact that a bank has planners who can help them work though these issues.

“All of the Big Four in Australia are among eleven AA-rated banks in the world now. That absolutely is an advantage for bank planning networks.

“But we tend not to talk about [issues like] we’re strong and big and safe. It’s not like that. Our research shows us that these are attributes that customers already apply to us. So we focus our marketing on how we can really help.”

Logan says ANZ Financial Planning has charged fees for advice for a couple of years, since introducing what it called the Prime Access Fee. In October last year, its offering was refined. The business now charges for the advice and service it provides, at three levels.

It charges for the preparation of the SoA, for implementation, and for ongoing service and monitoring. The implementation fee has been capped at 1 per cent of the value of assets to be invested.

“The planner has a lot of flexibility,” Logan says.

“If it’s a very easy implementation, they can reduce that fee to the customer. They have control over that.

“The third [stage] with a client, after they have decided whether they implement your advice [themselves] or if they pay you to implement it, is whether they want to have an ongoing relationship with you.

“They can pay us an ongoing service fee, which is a transparent fee – the minimum level there is $2500 a year. So that’s a dollar figure, and any trail [commission] in the solution gets rebated back to the client.

“Or they can pay the fee out of the commission from the product. Our planners put both on the table, and the client chooses which one they would like.”

Planner remuneration is an important aspect of how the industry interacts with its customers, but professionalism encompasses many more issues. Logan says the current economic and market conditions present an ideal opportunity to push for better standards across the industry, and the larger institutions can play their part.

But he acknowledges that the Financial Planning Association of Australia (FPA) has a difficult task, with a broad membership, representing a range of views and interests.

“I think they’re doing a very good job in terms of advancing the discussion around the value of advice,” Logan says.

“It’s very difficult to keep everyone happy. It’s a difficult and challenging environment.”

Commonwealth Bank’s Gunning says the difficult and challenging environment is helping all the banks attract new customers.

“There’s no question that in recent years no one has seriously questioned the financial strength or security of whatever financial institution they’ve been dealing with,” Gunning says.

“With what’s happened overseas, with banks in particular, clients, we are finding, are much keener to deal with an institution they think is [one,] well captialised, and two, going to be around in the future.

“We see that in a number of ways. We see it in the questions that new clients ask us. Are you going to be around? Are you committed to the industry? Those sorts of things. And we see it in talking to clients from competitors; particularly what I’d call boutique and smaller, independently-owned businesses. We’re certainly seeing clients come to us from those organisations.

“That’s not just driven by the fact that they’re looking for a port in a storm, but…they are probably querying some of their advice relationships anyway.

“I’m not suggesting these organisations are go- ing to fail; a lot of it is sentiment-driven. But when they do see organisations fail, like Storm, I think there’s an assumption that if we provide advice that isn’t appropriate, or we make a mistake, there’s always been the underlying assumption that if there’s restitution to be made, the institution is going to be able to do that.”

Like Logan at ANZ, Gunning says Common- wealth has “no plans to grow adviser numbers in the medium to long term”, but will keep numbers constant by recruiting new planners to replace those who leave.

Planner turnover in the Commonwealth plan- ning network is about 13 per cent a year, Gunning says, which is relatively low: “In the past, it’s been around 20 per cent, which I think is about the market average in the industry,” he says.

This natural replacement will lift the standard of the network because at the moment, when the bank looks to recruit a new planner “we’re finding better candidates put in front of us”, Gunning says.

“We generally do not look to recruit inexperienced planners. There’s certainly some evidence that they are coming to us from smaller dealer groups or smaller businesses.”

There’s more than enough business being generated through the Commonwealth branch network to keep its financial planners busy. Gunning says about 4000 referrals are generated each week, and “there aren’t too many financial planning businesses around the country that can do that”.

Still, that’s a miniscule proportion of the bank’s total customer base. It’s the 400-pound gorilla of the planning industry.

When times are uncertain, and when the image of the industry is under fire in any case, Gunning says financial planners are attracted to an organisation where “there’s an opportunity to be successful”.

“They want to be occupied, and I think they’re starting to see that those opportunities just aren’t around,” Gunning says.

“So planners start to move towards organisations that can offer those opportunities.”

Gunning says that Commonwealth will at least maintain its planner numbers in the year or so ahead, as it replaces those planners that leave the network, and it intends to capitalise on a shrinking industry.

“I think you can expect to see a reduction in planner numbers [in the industry] overall,” Gunning says.

“We’ve come off about 10 years of explosive growth in the industry. That’s going to start to moderate. Smaller businesses that are run well are doing well; where planners have diversified their revenue streams across risk insurance, mortgage broking and financial planning, retirement advice and superannuation advice, I think they are probably still doing OK.

“Certainly…large-scale collapses of [planning] organisations don’t help. And I think they have affected consumer confidence in the industry. But you need to be careful; this is also a market-driven issue. The fact of the matter is that most financial planning clients are going to have [investment market] exposure, and those values have been hit hard.

“But I am not so much concerned about that. As things improve, and over the long term as returns normalise, these issues are pretty cyclical.”

Gunning says Commonwealth is a supporter of the work being done by the FPA to lift professional and ethical standards in the industry. But he says that when members of the FPA are among those that collapse or cause client losses, it’s inevitable that all members, and the association itself, gets tarred with the same brush.

“We have to be supportive of the FPA,” Gunning says.

“What concerns me most is that, although it’s a broad church, what I don’t like to see is financial planners undermining their own professional association.

“I think the FPA for a long time has been…on the path of increasing professionalism, increasing education – we’ve just got to make sure that everyone goes along for the journey. ”

NAB’s Rogers says a quality that consumers are attracted to in a bank is stability.

“We have the same number of practitioners that we’ve had since the financial crisis started,” Rogers says.

“It’s our intention to hold that number. But if there are well-qualified practitioners in the market who suit our model of operating…they would be welcome to join us. So we’re still keen for the right people to join the organisation.

“But in terms of growth, growth comes in many ways. I am not necessarily going to add hundreds [of new planners]. We are looking at growth by improving the efficiency of the back offices, to allow planners to have more time with clients in the years ahead.”

Rogers says the aim is to have NAB planners spending an average of 80 per cent of their time face-to-face with clients, doing what planners do best: communicating, educating, explaining and reassuring.

“Our hunch is that because of what has happened in the past 12 months or so, clients are going to require more time,” Rogers says.

NAB aims to make improvements in “many things, over a number of years”, Rogers says.

More business – including insurance business – will be transacted online, for example.

“There are nine major processes that we have identified that we’d like to be working on over time,” he says.

Rogers says NAB has already done the hard yards on getting its advice model right.

“We’ve already done that, so now we’re more interested in thinking about how we can free-up planner time,” he says.

He says productivity will also be improved by better segmentation of the existing NAB customer base, so that a customer is directed to an appropriate planner as efficiently as possible.

“We have a very natural approach to segmentation, because of the way our model operates,” Rogers says.

“We align the practitioner relative to the client’s needs. We’ve not found the need to change that. This segmentation is based around reasonably fundamental needs.”

One segment might be customers with up to $100,000 of assets; another might be those with more than $350,000. There are financial planners in NAB’s private bank, and in its family office. The trick is to aim the appropriate planner at the client.

Rogers says that because NAB’s offer is fee-based, segmenting clients by asset value can work effectively. The client pays according to how complex or how simple the advice is – the amount they pay is not linked to the value of assets they have, but to the complexity of advice they need.

“Fees are calculated on the complexity of the advice,” Rogers says.

“If you’re doing estate planning, quite sophisticated [structures]…it could be up to $5000 or $6000. If it’s reasonably straightforward – someone in the accumulation stage, where we may or may not be [recommending] a product – it may come down to $1200 to $1500.

“It can vary tremendously. If you’re using a true fee-for-service model, you need to have some variation.

“We do put maximums in place; if a planner is what we call a ‘wealth manager’, we do set a maximum for them. And we set that maximum to make sure we’re getting the segmentation right. So we have a range of fees. It could be as little as $500.”

This fee covers the meetings that take place before an SoA is produced, the pro- duction of the SoA, and subsequent meetings.

Rogers says clients of other planning firms are coming to NAB, as consumer concern increases over those firms’ business practices and quality of advice.

“Some are coming from Storm; that’s certainly the case,” Rogers says.

“And there’s a number of customers who are cross-checking advice, where they’ve decided to get a second opinion.”

Rogers says there’s a huge opportunity for financial planning businesses to cement their relationships with clients right now. But there’s also a risk that those relationships could be soured forever.

“There’s a huge variation in the way it’s being handled, in my view,” Rogers says.

“If it’s an advice business that has a good clientele, where they have been working with their clients under the right model, with a substantial amount of trust, then I think they will get through it, and they will be better at the end of it, and their relationships with clients will be even better at the end of it.

“But if the business model doesn’t make sense, then I think it’s going to be a challenge. It’s going to be a challenge quite simply because if they don’t have an ongoing relationship with clients, they’re not going to get the revenue to survive. You can’t just flog product any more.

“It’s going to be quite confronting. People are going to have to be quite flexible with their business models.”

A flight to safety, a brand name, the benefits of scale and an extensive distribution network set banks apart from the majority of their financial planning competitors, says Westpac’s Spiers. But they also enjoy a crucial insight into consumer behaviour that their competitors can’t hope to share.

“Banks see the movement of money before anyone else – even customers – and the opportunity therefore to have a lens into the client base to find opportunities,” he says.

“Let’s use the most contemporary change, which is the Government guarantee for the banks. What has happened is a tremendous amount of cash, we’re talking billions of dollars, has flowed into the major banks.

“The banks get to see the age of the customer, their demographic, and whether they may need an offering, which could be a transition-to-retirement strategy, an accumulation strategy or protection strategy.”

Even term deposit customers are being monitored.

“For example, we know how many millions of dollars in a customer segment is going to come up for maturity in March,” Spiers says.

“We know the age of the customers, and we know the amount.”

Spiers says the big banks can be viewed as being made up of several smaller banks. In Westpac’s case, there’s a private bank, a premium bank, regional and agribank, a business bank, an institutional bank and a commercial bank.

Each caters to a specific market segment, and generates a specific kind of customer referral. The bank won’t be shy in letting customers in each segment know that there’s a financial planning service on offer.

“When we make contact, we follow protocols,” Spiers says.

“If we know a customer is a customer of a group…we don’t make the contact.

“If they have an existing relationship [with a planning firm] and if they are happy with it, we leave it undisturbed. Our strategy is not to poach or seduce customers of other planners. The market, and our customer base, is still largely untapped for advice. I know there’s some segments where we have very little penetration.”

Spiers says Westpac has no plans to increase planner numbers in the short term – the next year or so – but will do in the medium term.

“At the moment we have a number of vacancies which we’re recruiting for and filling, across the business,” he says.

“These vacancies tend to be in the senior and executive planning ranks, where we’ve either had people retire or move across to [the Westpac-owned dealer group] Magnitude.

“We’re either filling them internally with our [own] planners, but a number of approaches we have had from highly-qualified independent financial advisers [IFAs] who have seen the strengthening professionalism, the [financial planning] tools and the brand, are looking to join Westpac.

“In the medium term, 12 months to two years, we do want to grow. That growth is right across our business, because of the unmet needs of the customer base.

“We have the capacity for growth, because we can match the cost of a planner with the revenue opportunity coming from improved engagement with our financial planning partners. When someone puts on a planner, their question is, how do they generate enough revenue? We can do that, because we have a pipeline that generates leads of people who need advice.”

Like all well-run planning networks, banks have used natural attrition to bring on better-qualified planners and improve the overall standards and quality of their branded financial planning operations.

“At the top end, [our planners] they are equal to any planners who sit in any kind of planning group,” Spiers says.

“And we have developing and emerging planners – called ‘advanced’ planners – who are coming through.”

In February this year, Westpac committed to clearly separating advice from product. Customers now pay a fee for the preparation of advice, including an SoA, and a separate fee for implementation and ongoing advice.

Spiers says all financial planning firms must place a value on the advice they provide. He says planners should be paid for their “advice, their professionalism, expertise, education and training”.

“We’re drawing a line in the sand and sticking a stake in the ground, if I can mix my metaphors. If we don’t value our advice, how can our customers? How can our banking partners?”

Spiers says that before Westpac taps into its customer base effectively, it needs to improve its middle- and back-office performance, with the aim of increasing the amount of time its planners spend face-to-face with customers.

“We’ve been making a significant investment in developing some tools, such as an interactive SoA, to help our planners become more efficient in terms of servicing their customers,” Spiers says.

“Industry-average customer-facing time, [according to] a report late last year, was 35 per cent. We are below that. But we believe that by focusing on customer segmentation, having a strong value proposition…and getting the tool set right, our planners can significantly increase the amount of time they spend with clients.

“Our goal would be to move to that industry average, and the next step would be to move beyond it.”

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