The directors of some of Australia’s major banking organisations must be wondering what went wrong with their investment in wealth management which looked so attractive and prospective barely more than a decade ago.
Notwithstanding all the talk about how the major banks dominate the financial planning space and the concerns expressed about the consequences of vertical integration, wealth management has not proved to be the goldmine that many senior bank executives envisaged.
Indeed, a quick appraisal of the full-year results announcements of the major banks suggests that while there have been some improvement in the performance of wealth divisions, few of them have emerged as the stand-out performers that had been hoped for. There are a range of reasons for this, but economic factors such as the global financial crisis combined with never-ending regulatory challenges have been top of the list.
In simple terms, what looked like a no-brainer in terms of leveraging bank distribution and reach has proved to be much more challenging than was originally envisaged.
All of which makes recent research conducted by actuarial consultancy Rice Warner for State Street Global Advisers an interesting read because it points to the fact that notwithstanding the challenges, there is a substantial on-going demand for quality financial advice and not enough advisers to meet that demand.
The Rice Warner analysis looks at the issue from the point of view of superannuation funds, noting that the provision of financial advice has become an integral part of the offering major superannuation funds and that they need to be investing more in that area.
More importantly, however, the Rice Warner research noted that with a projected increase in the take-up of advice by fund members over the next decade, the 16,000 to 18,000 practising financial planners will not be able to service demand via face-to-face conversations.
It suggested that digital advice, as well as phone-based advice would help solve the scale conundrum.
“It is here where superannuation funds are focusing on triaging and guiding members to the most appropriate advice channel,” the Rice Warner analysis said.
However, where the provision of financial advice to superannuation fund members is concerned, the major industry superannuation funds quite pointedly do not seek to utilise the services of the banks, meaning that they either deliver advice services via organisations such as Industry Funds Financial Planning or via arrangements with companies such as Mercer or, in the case of Cbus, via its arrangements with the Financial Planning Association (FPA) and approved dealer groups.
This suggests that while, in the immediate aftermath of the global financial crisis, many financial planners sought to find security under the vertically-integrated umbrellas of the major banks and while many smaller dealer groups sought to be merged or acquired, there is scope for the industry to resume its pre-GFC growth pattern, notwithstanding changed remuneration arrangements and the demise of volume rebates.
The bottom line is that, as the Rice Warner research makes clear, there is a substantial unmet demand for quality, independent financial advice and not everyone will look to the banks to be the providers.
Mike Taylor
Managing Editor
