Three of the country’s largest institutionally-owned wealth businesses have revealed plans to shrink and refocus their respective advice strategies, while a fourth has moved to adapt its client engagement arrangements ahead of legislative changes.
Commonwealth Bank, National Australia Bank’s wealth brand, MLC and wealth giant, AMP, have each respectively revealed more detail relating to their shrinking advice presences in the Australian market.
Meanwhile, the country’s second largest advice network by adviser number, IOOF, has rolled out its plan to adapt service agreements in light of the government’s blueprint to implement annual review and payment for financial advice legislation by June next year.
Bye-bye FinWis
Commonwealth Bank revealed in August that its Financial Wisdom licensee will be closed down and no longer offer licensing services by June 2020, bringing to an end continued speculation on the fate of the beleaguered entity.
CBA revealed the closure of ‘FinWis’ at its FY19 results announcement. The bank disclosed that $26 million (pre-tax) was paid to “support” Financial Wisdom and its CFP Pathways licensee, as well as other internal project costs, in FY19. The results showed that Financial Wisdom and CFP Pathways combined for a post-tax loss of $11 million, ex-remediation provisions.
CBA also revealed it had allocated $534 million in total to aligned advice remediation in FY19, with 75 out of 156 remedial milestones completed in its remediation plan. Including program costs, the bank stated it spent over $1 billion on customer remediation in 2019, and $2.2 billion over the past two years.
MLC consolidates
National Australia Bank’s soon to be detached wealth arm MLC, meanwhile, announced it planned to consolidate three of its dealer group brands into one as-yet undetermined new brand, choosing to preserve Godfrey Pembroke as a standalone high-net-worth dealer group.
Along with the consolidation plans MLC CEO Geoff Lloyd outlined the closure of its self-employed NAB Financial Planning and MLC Advice Stores, along with a change in the way it charges for licensing, with an unbundled support and fee structure model supplemented by specialist professional services that are charged individually by the group.
AMP’s BoLR burden
AMP perhaps made the biggest splash of the institutionally-owned wealth businesses with its plans, less-so based on what it told the market publicly, but rather what it informed advisers within its network behind closed doors.
AMP told the market it will reduce its adviser number but it didn’t specify specific targets. Separately, the group said it planned to amendment its buyer-of-last-resort program, reducing its buy-out multiples from 4.0 times recurring revenue to 2.5 times.
The company’s BoLR backtrack was described as a surprise to many advisers who were informed of the news at a gathering on the same day of group’s broader market strategy announcement, but it was in-line with the Hayne royal commission recommendations which singled out AMP’s buyback deals as unbefitting of the new advice paradigm.
More broadly, Francesco De Ferrari, AMP’s CEO, vowed to fix AMP’s legacy issues and reshape aligned advice with “fewer, more productive advisers”.
“We have a unique opportunity to reinvent wealth management in this country,” De Ferrari said on an analyst call following the announcement in August.
De Ferrari noted that 20 per cent of AMP’s advisers contribute about 60 per cent of revenue and funds under management at the same time as outlining AMP’s desire for efficiency.
Retrofitting advice
While IOOF, the country’s second largest advice network, has not announced plans to cull its numbers in its sprawling network, Darren Whereat, the group’s general manager of advice has confirmed it’s begun a move from current OSA arrangements to 12-month contracts for advice.
Annual contract arrangements will be implemented for all new IOOF clients from January 1, 2020. Existing clients will roll over into the new arrangements as their reviews are conducted throughout next year, according to Whereat.
The revelation of IOOF’s plans coincide with the release of a government blueprint in August for implementing legislation to enforce the Hayne royal commission recommendations. New legislation for annual review and payment for financial advice will be introduced in the first half of next year, according to the government’s plan.
IOOF more than doubled its size when it folded almost 1000 advisers into its network earlier this year following a deal to buy ANZ’s wealth business which it consummated at the end of 2017.
Westpac Bank, the final member of the “big-five” institutionally-owned wealth businesses which have been split apart following Hayne’s royal commission review, final report and recommendations, announced its plans to exit advice back in March, closing its BT Financial Planning, Securitor and Magnitude brands.
CBA spent more than a million per adviser on remediation and its wealth management businesses ran at a loss in the end before remediation costs. My impression over the years was that CBA was below average among the big licensees but not the worst in terms of accumulating future remediation liabilities (which they now paid off).
What does this say about the institutionally aligned adviser model? Is it inherently unprofitable with huge remediation liabilities which are discovered under thorough scrutiny? I applaud CBA for cleaning up so thoroughly but they weren’t much worse than the others. What will happen when other institutions that combine advice with product sales have their affairs equally thoroughly looked at?