Banks Will Have To Choose Between Advice And Product
14 Apr 2017
“The shift is structural, not cyclical. Consumers are driving it. Why would banks continue a vertically integrated system when consumers are deciding not to get product and advice in the same place? There is a big shift towards the independence model.”
Banks will continue to own wealth businesses but these are unlikely to include both advice and product manufacturing operations, predicts a former head of National Australia Bank’s wealth division.
Steve Tucker, former boss of MLC and chairman of boutique advisory Koda Capital, believes the banks will need to choose between their advice and product businesses because savers no longer want to receive products such as insurance, managed funds and administrative platforms, and services from the same company.
Mr Tucker said the shift was already under way, underpinned by the number of independent advice firms that have been established in the past few years. These include Koda, Escala Partners and Crestone Wealth Management.
“The shift is structural, not cyclical. Consumers are driving it. Why would banks continue a vertically integrated system when consumers are deciding not to get product and advice in the same place? There is a big shift towards the independence model,” said Mr Tucker ahead of The Australian Financial Review Banking & Wealth Summit in Sydney. Mr Tucker will be discussing the future of the wealth sector as part of a panel on Wednesday.
“The good news is there is a significant role for product and advice, it’s just that the two should no longer be blurred in the minds of the consumer,” Mr Tucker said.
The Koda co-founder argued that while banks would lose their competitive advantage in providing advice to wealthy savers with complex financial arrangements, they would retain their advantage in providing information and general advice, utilising technology developments, to mass market customers with more straightforward needs.
Mr Tucker said that one positive side effect of a shift of financial planning away from large institutions to independent firms was that it would allow advice to be recognised more readily as a profession. He argued the task was made far more difficult under the current system because of a “structural conflict” which made it difficult for advisers to be seen as anything other than salespeople selling in-house products.
“These changes will allow a profession to emerge and be recognised, not because the education standards have been raised, but because the last great barrier to this occurring falls away. As the significant majority of advisers become structurally aligned to the client, rather than the product provider, it can only then be recognised as a profession for the first time,” Mr Tucker said.
Mr Tucker questioned one of the key planks of a Productivity Commission report published last week that suggested the government appoint a panel to select a list of up to 10 default superannuation funds from which either individuals or companies would choose, or into which the super contributions of disengaged savers would be directed on a sequential basis.
Under the current model for distributing super contributions for workers who do not choose their own super fund, members’ money is mostly directed to a handful of retirement schemes that are listed in industrial awards. The process is overseen by the Fair Work Commission.
“If you have another government process, are you reinstating the same problem? The mechanism looks a lot like market intervention, which could distort the competitive landscape,” Mr Tucker said.
Karen Chester, the deputy chair of the PC will appear on the same panel, as will Brad Cooper, chief executive of BT Financial Group, Debby Blakey, CEO of industry super fund HESTA, Simon Swanson, head of insurer ClearView and Gauthier Vincent, US wealth management leader at professional services firm Deloitte.
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