The virtual absence of banks from financial advice has been a uniquely Australian experience, according to consultancy giant EY, with advice critical to the relationship banks have with their customers worldwide.
EY Oceania banking and capital markets leader Tim Dring tells Professional Planner Australia has been a “different trend” to other developed markets.
“Looking at the US, the Asian or European market, advice and related services are still akin to underlying banking services. There’s speculation and debate if the banks get back into it at some point and what that model looks like will be different.”
Dring says advice is critical to the relationship banks want to have with its customers whether that is something they own directly or not.
“There will be a point in time where banks start to look at that agenda again and perhaps think about how they do provide advice and advice-like services to their customers. With increasing wealth in Australia advice is critical. Whether it’s for risk or investment products, there is a gap in the market.”
Dring says a potential return by the banks into advice will be tech-led, relying on robo-advice that leverages data gathered through improved systems implemented during the Covid-19 pandemic.
“Covid-19 was a turning point for them around customer outreach in relation to mortgages. They understood a lot more about their customer profile. Much of that was trying to understand their credit risk exposures more than anything but it did acknowledge there was a gap in their data set.”
Healing the scars of the past
EY’s analysis of the 1H22 financial results of the big four banks found all are in a strong financial position with $14.4 billion in combined cash earnings.
The most recent result was from Westpac on Monday morning which reported a statutory net profit of $3.28 billion to the ASX.
Westpac announced it closed seven cases with ASIC worth $113 million during the last month including charging advice fees to deceased customer accounts and “inadvertently charging adviser commissions” for insurance in superannuation products offered by BT.
While remediation haunts the reputations of the banks, Dring notes this is the cost of doing business for the major institutions.
“There’s also been remediation on banking products. Whether it was mortgage accounts that weren’t offset properly or incorrect fee calculations. We’ve seen it more on the advice side. I wouldn’t say they’re through it but they certainly towards the back end rather than the front end.
Although it’s been costly and painful, Dring says, a breakdown of the fundamental issues that caused remediation show product proliferation and too many processes focused on selling was the cause.
“As the banks move through system rationalisation, process simplification and improved data, it does set them up better for further product development and perhaps diversification out of banking products.”
Those who fail to learn from history…
If a new look re-entry into advice is on the cards for the banks as Dring says, then it’s important to note the mistakes made in the past.
Speaking at the Professional Planner Researcher Forum in March, Koda Capital founder Steve Tucker described the banks last foray into financial advice as “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.”
