Kelly Power acknowledged the newly announced suspension of CBA’s demerger of its CFS arm at the start of a fireside chat with IMAP chief executive Toby Potter in Sydney today, before outlining her concerns for the advice industry and charting a way forward.
“I am the general manager at Colonial First State. I would have said Newco, but now…” Power said at the Institute of Managed Account Professionals conference. “It was to be the demerged entity, [but is] now remaining with the Commonwealth Bank, which was announced this morning’.
The announcement from CBA was the talk of the room, which had gathered for the session called ‘A longer term perspective on advice businesses’. The bank released an update on its website this morning – following its full response to the recommendations from the Hayne Royal Commission last week – that it had “suspended preparations” for the demerger of it’s wealth management and mortgage broking businesses.
The statement said the bank was prioritising the implementation of the recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, including “refunding customers and remediating past issues”.
“Accordingly, CBA has suspended preparations for the demerger in order to support the focus on these priorities,” the release stated.
The delay is a notable shift in strategy from the bank, which originally announced the demerger in June, 2018. The demerged CFS Group, rebadged as “NewCo’, was originally earmarked to include CBA’s Colonial First State, Colonial First State Global Asset Management (CFSGAM), Count Financial, Financial Wisdom and Aussie Home Loans businesses.
In October, the bank confirmed it had agreed to sell CFSGAM to Japan’s Mitsubishi UFJ Financial Group for $4.1 billion. Within weeks, it was also announced that the new, slimmed down version of the bank’s wealth spin-off would be led by ex-SocietyOne managing director Jason Yetton.
Speaking at the IMAP conference, Power laughed off the latest development.
‘We’ll just go with flow,” she said.
‘That’s sickening to me’
Power cited several alarming datapoints to illustrate how wide the advice gap is in Australia, and reiterated that there is an “absolute need” for people to get financial advice.
30 per cent of people say their lives are entirely controlled by their finances, Power explained, and 88 per cent of Australian adults are afraid to retire.
“That’s sickening to me,” she said.
Power lamented the cost of increasing “compliance and complexity”, and said advice is becoming less accessible “for the people that need it most”.
Despite the current headwinds – including the fallout from the royal commission and tough new education standards – there is hope for the industry, Power said. This can be garnered from observing the Retail Distribution Review in the UK, which led to the introduction of new transparency and fairness rules – as well as new education standards and the abolition of commissions – in 2013.
“There are some real parallels,” Power said.
Between 20 per cent and 50 per cent of advisers in the UK subsequently left the market, she explained, leaving one adviser for every 2500 people.
“That was a difficult period, and people were saying ‘it’s just too hard’ and changing roles.”
After three years, however, Power said the industry righted itself with a much better value proposition.
“What we’ve seen more recently, since about 2016, is a re-entry of advisers and more profitable advice businesses,” she said. “The new advice businesses that emerged are 25 per cent more profitable than the ones that were there before.”
Power explained that the new generation of advisers “reinvented themselves”, and went into the market in a much more “client centric way”.
“The focus is not on commissions, not on payment models, not on all those things that are deemed conflicted, but about how [they] can actually help the customers and members,” she said. “And that makes me feel really confident.”