Could banks move into the retirement space?

EY believes there is a benefit for banks in returning to the wealth space and developing decumulation products for retirement. 

In Australia, banks exited the advice space in the wake of the negative press around the Hayne royal commission and its subsequent strict regulation and compliance which had the knock-on effect of creating an advice gap.

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Douglas Nixon, EY Asia Pacific banking consulting leader, said there is a “genuine need” to shrink this advice gap in Australia which could be achieved by assistance of banks. 

He also compared Australia to global banking peers that have found a foothold in the wealth management market and are playing a larger role in the retirement life cycle of their customers. 

“While many international peers put wealth management close to, or at the core of, their strategy, Australian banks almost uniformly exited the wealth market,” he said.

“With regulatory scrutiny on financial advice intensifying, profit margins dwindling and compliance requirements increasing, wealth and financial advice were placed in the ‘too hard’ basket.”

But Nixon suggested wealth management offers a “new stream of funding” for banks who are seeing gains from the higher interest rate environment being eroded and intense competition and slower loan momentum impacting their growth opportunities. 

There is also a huge market for retirement as the number of retirees is expected to grow to 1.8 million in 2050, up from 0.4 million currently, according to Treasury estimates. 

Nixon stated: “With substantial competition in core markets, particularly retail credit and deposits, wealth management offers local banks a new stream of funding and revenue while staying true to the domestic market mandate.

“With their established customer bases, suite of products to serve the end-to-end financial journey and existing infrastructure, banks are well-positioned to offer a range of wealth management and decumulation products. If done carefully, supporting customers towards and into retirement could improve customer experiences and outcomes, provide new sources of growth for the industry, and increase loyalty.

“Such a move would be a logical extension of a holistic approach to support financial wellbeing throughout a customer’s life.”

As well as access to the transaction data of their customers which could enable them to estimate potential retirement needs, data provided by super funds as part of the Retirement Income Covenant could also provide a base for creating decumulation products.

APRA has been pushing super funds to develop decumulation products as well as accumulation ones in order to prepare for the large volume of members approaching retirement.

“Banks are already proactively supporting people to save for a holiday or a house with a budgeting and spending tool. Wouldn’t it also make sense for them to help Australians plan, save and invest for retirement? It may well be time to reconsider the role of Australian banks in retirement.”

In the government’s formal response to the Quality of Advice Review (QAR), it stopped short of suggesting that banks return to financial advice in favour of advice provided by superannuation funds. 

This was despite support from some key industry players who felt banks had a role to prevent people accessing advice from unregulated channels.

However, Minister for Financial Services, Stephen Jones, has hinted it is something that could be explored in the future if the advice from super goes well.