Leaking billions, the banks depart wealth management

And then there were none.

The great banking adventure in wealth management all but ended on Tuesday, 19 March, 2019 having cost the Commonwealth Bank, ANZ, National Australia Bank (NAB) and Westpac billions of dollars to get in and, ultimately, billions more to exit.

Westpac completed the full set of Australia’s four big banks exiting wealth when it announced that it was exiting personal advice by salaried and aligned planners and aimed to complete the transaction with relative unknown, Viridian Financial Group, by September, this year.

I say the banks have all but ended their wealth management adventure because, of course, the Commonwealth Bank has had to slow-down its exit from Colonial First State, Count Financial and its mortgage broking business to finish its fee for no service remediation, while former

Perpetual chief executive, Geoff Lloyd, still has a significant job in front of him in completing NAB’s exit via the divestment of MLC.

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The big banks’ wealth management adventure lasted just short of two decades and reflected the value they saw in investment management outfits such as Colonial and MLC in 2000 – a time when Australians were increasingly embracing share ownership via, ironically, the Federal

Government’s decision to privatise the Commonwealth Bank and transactions such as the demutualisation and listing of the NRMA. 

It was a time when residential property began its long rise and when, aside from minor hiccups such as the “tech wreck”, share markets maintained an upward trajectory despite the misgivings of some analysts and commentators.

Perhaps surprisingly, the banks’ wealth management adventure lasted almost a decade beyond the global financial crisis as some exhibited their willingness to continue the party when the Commonwealth Bank opted to spend $373 million on acquiring Count Financial in 2011.

But, two years’ later the Future of Financial Advice (FoFA) regime became law, commission-based remuneration and volume-based rebates were banned and while the adrenalin which had fuelled the adventure was still flowing, it should have been clear that commercial exhaustion was setting in.

In athletics, exhaustion can lead to poor judgement and the same seems to have applied to the banks and wealth management, giving rise to the succession of bad decisions which were revealed during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, not least fee for no service.

But if anyone wanted to truly understand the commercial rationale behind the big banks’ exits from wealth management they need only have followed the testimony delivered to the Royal Commission and the evidence given by Commonwealth Bank chief executive, Matt Comyn, to the House of Representatives Standing Committee on Economics.

Comyn neatly encapsulated the hard financial reality which had confronted the board of the Commonwealth Bank when he said that of the $1.4 billion the company had had to pay in remediating clients, $1.2 billion was with respect to wealth management.

So now that the great wealth management adventure is over and Westpac has found a buyer for its business, who will be willing to ante up for the MLC and CFS businesses?

Mike Taylor

Managing Editor