AIOFP flags stealth re-entry of banks to advice

An industry association has said it suspects a lingering interest from banks to return to wealth management, noting that proposals in the Quality of Advice Review (QAR) would make it “less legally onerous” than existing regulations. 

According to the Association of Independently Owned Financial Professionals (AIOFP), there are concerns regarding the “institutionally aligned lobby faction” of the advice community. 

“We don’t believe the current bank rhetoric around having no interest in wealth management is credible. We suspect they are trying to create more alluring market conditions by stealth to suit a reintroduction of a digital version of vertical integration,” said Peter Johnston, AIOFP executive director.

“Clearly, a Good Advice obligation is preferable and less legally onerous than a Best Interest Duty for the banks to operate under.

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“Why else would a major bank make a public statement that they are no longer interested in advice? Is it to allay fears around banks wanting to get back into advice? Why say anything? 

“We are bemused with this position. We think banks are very good at most things financial, but wealth management/advice is not one of them. The recent Royal Commission outcomes support this fact,” Johnston commented.

Earlier this year, Westpac chief executive, Peter King, told at the AFR Banking Summit the bank has no plans to return to the high-net-worth space.

Looking at the involvement of super funds and institutions in providing advice, the AIOFP reiterated its position that the Best Interests Duty must remain in place to protect consumers from conflicted behaviour in the financial advice process.

Minister for Financial Services, Stephen Jones, has stated he initially intends to limit advice to superannuation funds as they have different legislation to banks. If advice from super funds is successful, he said, it could be expanded to banks at a later date. 

“If we can’t get it right in retirement, we have no hope in any of the other areas. They have different fiduciary duties, different prudential arrangements; it’s a much safer sandbox to progress these things than in banking or managed investment schemes which have different arrangements to super.”

Presently, three of Australia’s four big banks have bowed out of wealth management. In June, Westpac announced its decision to retain and continue to invest in its BT platform business, which has some $131 billion in funds under administration and supports more than 350,000 investors. 

Previously, BT had exited its superannuation business, selling it to Mercer in early April, and also exited its BT Advance Asset Management business, also to Mercer. Its $1.9 billion Private Portfolio Management business, an individually managed account (IMA) service, will also transition to Mercer in the fourth quarter of 2023. 

However, while the focus is on super, financial services execs are not averse to seeing advice from banks again in the future as a way to close the large advice gap.

Speaking at a Financial Services Council event, former abrdn managing director, Brett Jollie, said he could see a role for banks in providing advice despite their previous history which led to the Hayne Royal Commission.

“Anything that broadens supply is a good thing. There’s not enough financial advisers today, so there is a massive advice gap and that won’t change overnight. 

“Broadening the base of super funds will help, but it needs to be broader. What about purely investment advice? There has to be a role for banks in this. That has been controversial in the past but the guardrails have changed and there’s a role to be played there, as well as for accountants and other non-relevant providers.”

He continued on to reference how the role for banks had played out in the UK since the Retail Distribution Review. The concept of vertical integration was also viewed less negatively in the UK, he said, than it was in Australia.

“There is a role for banks and we have seen that post-RDR in the UK. Providing the consumer protection guardrails are in place, we’ve changed the framework a lot and have a process; there is a role for banks to play in advice and potentially super.”

HUB24 managing director, Andrew Alcock, added banks returning to advice would help to prevent people seeking advice from unqualified or unregulated channels. 

“[Banks] might have moved away, they might come back, they might come back in a different form and that may not be bad. Most banks already have private wealth arms and advice channels.”