The banks entry into financial advice was never going to work out as they lacked seeing the value of it according to Koda Capital founder Steve Tucker.
Speaking at the Professional Planner Researcher Forum in a fireside chat with Conexus Financial chair Colin Tate, Tucker said the industry made reasonable progress since the departure of the big four banks.
“The banks foray [into advice] was misconceived. At the end of the day what the banks are really good at is developing great financial services products. They’re not always thinking about the advice part of that.”
Tucker said the result was two different types of organisational cultures coming together in a difficult set of circumstances.
“Banks paid a lot of money based on a business case that was really the result of taking the number of clients in the client base and looking at how they can get those products into those hands and generate good profits.
“At the time that was a reasonable proposition,” he continued. “We were still in a transition from what has been a very significant sales-based industry into an advice profession.”
They weren’t wrong to model their businesses this way, Tucker said, but they misunderstood the market was shifting very quickly.
“Not because of regulation or because people were doing the wrong thing, mainly because what clients needed from advice was changing quickly. Rolling forward to today, the banks have all moved on or are moving on. I don’t think it is a bad thing. It’s what we tried and were proven over many years that those two types of organisations ultimately weren’t going to be successful together.”
Tucker said underinvestment into the wealth side of those businesses ultimately left them languishing.
“That vertical integration system had a lot of challenges and it still does. There are still some big players in that vertical integration system and I wish them well but it is complex.”
AMP Advice in safe hands
In an earlier session, AMP Advice chief executive Matt Lawler said his firm “owns verticals but we’re not vertically integrated”.
Tucker praised Lawler and said AMP’s advice arm will be adequately guided with Lawler’s leadership.
“If you can run an advice business that generates economic outcomes on its own and you can also be associated with a great product and service business that happens to be good enough these folks to want to use it, then you can let these things exist side by side. If one is weaker than the other, it doesn’t work.”
Not as confident about advice in super
Tucker didn’t have as favourable of a view for intrafund advice used by superannuation funds which he described as a “product and service business” rather than a “product and advice business”.
“They have many clients in that system generally through default. They’ve elected to be part of that without advice, but those clients still need the benefit of having some semblance of advice or as their account balances increase more sophisticated advice.”
The comments come as the shadow superannuation minister Stephen Jones said earlier in the year he was “intensely uncomfortable” with vertically integrated models being used by super funds.
“There’s a line there between using that advice to keep people in your product that is not suitable for them and not to leave, but all those challenging points in the process is where it falls down,” Tucker said.