Kiwi banks may follow Australians out of wealth business
It’s possible that New Zealand banks will follow their parents out of financial advice – but it would be to the detriment of New Zealanders, one commentator says.
Tuesday, December 4th 2018, 6:00AM 
12 Comments
Westpac’s chief executive in Australia has blamed a “dramatic rise in compliance costs” forcing him to reconsider his commitment to a full-service wealth operation.
It is the last major Australian bank to hold on to the wealth channel there, as others ditched it amid allegations of misconduct.
Now, although chief executive Brian Hartzer said vertical integration was still a viable proposition for banks, he said it was hard to make a financial advice business sustainable.
He said compliance costs had gone up dramatically because client files had to be “checked and double-checked”.
A spokesman for Westpac in New Zealand said it used a different model in this country to offer financial advice and had no plans to make any immediate changes.
“We regularly review our wealth advisory service to ensure we are operating efficiently whilst continuing to provide good quality financial advice to our customers.”
Banking commentator Claire Matthews, of Massey University, said it would be unfortunate if New Zealand banks stopped gibing financial advice because it was the most accessible form of advice for New Zealanders.
ANZ is going through shake-up, after the sale of OnePath to Cigna last week.
“While it would be good to think that non-bank financial advisers could fill the gap, I don’t think that is realistic, at least in the short term. It’s possible that the New Zealand banks will follow their parents if the parent bank has made a strategic decision to restrict their operations to pure banking, either due to the risks or lack of profitability.
"However, the costs being faced in Australia are the outcome of the recent enquiry and related issues, and as the FMA/RBNZ review has indicated the same issues are not evident in New Zealand, it’s possible the New Zealand banks will be left to make a decision on wealth management services that best suits their circumstances. “
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Comments from our readers
On 4 December 2018 at 8:29 am Pragmatic said:
I believe that it’s important to look through the Royal Commission sideshow to really appreciate the motivation for any large financial services entity to stay or leave wealth management. A clue is what will best serve their shareholders – and by default their Executives. For many years, large financial institutions have struggled to make a meaningful buck from dispensing advice (despite owning the full value chain), with balances sheets encumbered, leverage limited, and the Regulator constantly campaigning in favour of consumers ahead of stakeholders. Whilst compliance costs will no doubt go up, I’m unconvinced that this is the primary reason for large financial service entities to exit the industry.
I’m drawn to the comments of Australia’s outgoing IFM Investors Chairman, Garry Weaven: “One just wonders what their [the banks’] business model might be. Once you lose the contaminated advice channel as a major source of getting business, it’s a bit hard to know what you’ve got – if you don’t have bank branches and you don’t have a contaminated financial planning organisation, it’s hard to know what your model is.”
On 4 December 2018 at 9:16 am Dirty Harry said:
Murray: You know why there is a belief that banks provide "advice".
If I sit down with a client, makes notes about their current financial position, goals , objectives, existing insurances, insurance needs, wider issues such as wills and business ownership, then prepare a set of recommendations after processing all the info obtained, comparing several insurers products and pricing, written up a resport including referrals to lawyer, accountant etc
= advice
bank teller tries to sell travel insurance to someone who came in to deposit a cheque
= advice
bank staff informs clients signing mortgage docs that the bank 'requires' they have life insurance, but happens to have a quote and form ready to go
= advice
bank teller sells a kiwisaver switch to someone who came in to get a replacement eftpos card, because they can see the balance on their phone
= advice
Welcome to the level playing field.
On 4 December 2018 at 9:38 am Bikedude said:
I fail to see how it would be to the detriment of New Zealander's , apart from perhaps less people taking out cover because it wasn't offered to them with fries. It certainly wont be a loss on quality of product or lack of good advice! On 4 December 2018 at 9:39 am NormanStacey said:
Banks have more experience:
http://www.stuff.co.nz/business/3987735/Damning-ING-report-sent-to-government
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11197385
On 4 December 2018 at 9:42 am Brent Sheather said:
Well said Murray. Doesn’t Westpac have something to do with Massey University? Coincidentally I just read a paper by a US academic entitled “Is No Advice Better Than Bad Advice?” No guesses as to the conclusion. I think a study commissioned by President Obama came to the same conclusion.
Regards
Brent
On 4 December 2018 at 11:03 am Bankadviser said:
@murrayweatherston banks do not typically distribute third party products, or if they do they are white labelled with the banks own brand. F&G is an example of this.
They make no secret of this if you check any of their websites or if you just ask their staff. Banks also have different channels for advice that range from simple to complex, and are managed through different channels through QFE or AFAs.
The AFAs and QFE advisers in these organisations are as regulated, if not more so that many other advisers in the financial services industry. I have over 20 years in this sector and have also worked with independent advisers. I have a solid base to comment from.
@dirtyharry, bank staff are prohibited from front loading products into bundles in the way you describe. Ultimately the advisers that work for banks are selling the bank own products and are employees of the bank and are regulated through the banks QFE internal controls.
These are not light touch controls, but like any control are not infallible and are subject to oversight from internal risk compliance and audit staff, external auditors, and for the Australian banks there is APRA thrown in on top of RBNZ and FMA. It's easy to throw stones when you don't have all the facts I guess
On 5 December 2018 at 12:00 am John Milner said:
I’m afraid some commentators appear to be getting a little precious regarding the term advice.
Although I’m personally an independent investment adviser, I appreciate there is varying levels and quality of advice out there. This too is the case of the banks as Bankadviser has just stated. Some clients require a higher level of advice than others but it’s still advice.
There are plenty of non bank advisers in the market both risk and investment that have, in reality, a very narrow product offering. Is this advice? Probably.
Just different from what my value proposition offers.
Be careful what you wish for.
If NZ banks were to offer a whole of market service tomorrow, there would be some very sorry advisers out there in deed.
On 5 December 2018 at 7:35 am Murray Weatherston said:
@bankadviser
Great to get your confirmation that banks recommend only their own products.
As we've said many times, they've got the regulators twisted around their fingers so that their naked sales activities are officially cloaked in the disguise of advice as Sir Anthony Mason CJ (ret'd) so eloquently stated in Australia.
On 5 December 2018 at 9:06 am Dirty Harry said:
Oh I have more facts than you imagine.
I worked for two major banks. I did the tag-ons and cross selling and referrals. I had targets and KPIs.
Yes, I'm throwing stones. They were given to me by the regulator in their multiple reports.
And I didn't say they front load into bundles. The bank might 'require' or strongly suggest, in their loan docs that life insurance be held, or evidenced. They are prohibited from requiring their own products be bundled. That's not what I said. I said they happen to have a quote and forms ready to go.
Perhaps 'internal controls' means different things to different polo shirts.
On 5 December 2018 at 9:36 am JPHale said:
As much as we debate the merits of bank vs adviser advice, and I'm for adviser advice, the law on this specifies advice is the recommendation to hold, take, or dispose of a financial instrument.
So regardless of where you sit of this, it’s a low and relatively simple test.
Yes, banks only sell their flavour, we know that, and that is often a problem when it comes to the hold/dispose of part of the equation on existing business. This is where the harm happens.
For the rest without, so what that there is a better product? The bank option is generally better than nothing. This becomes a place holder for the client until they get to an adviser with a better range of options.
The core issue, and Murray and I have discussed this, is the replacement of products without the comparison on pros and cons. Client's moving and not knowing what they have lost is the big issue, particularly in life insurance.
For the rest, meh, yes there is some financial impact, generally the change can be undone without too much damage. As much as there is noise about the ANZ ’move to see your kiwisaver balance’ issue, It can be undone. The bigger issue here is the cost of change and change back that is created, and the sour grapes from losing a client.
The issue the FMA and government are more concerned about is the conduct around replacement. At the end of the day a client switching to an inferior product is entirely their choice. Provided it is done in a transparent way to ensure they are making an informed decision, it is their life they have to live with it.
Long and short, that may suit them just fine. I don't like it, and probably won't agree with their decision, but it is their decision. So long as it's informed, draw a line under it and move on.
On 6 December 2018 at 3:28 pm Chris Hardcastle said:
Today, I met with a mature, professional couple for whom we are about to provide a fee based comprehensive planning service.
When we came to a discussion about Kiwisaver (which they don't have)they told me they have an application at home which was given to them by their bank.
They said they have been 'hassled' by the bank about Kiwisaver for ages. They also stated that they were handed the form and then told that if they want to go ahead with it they will need to see someone in the bank after they fill it out.
They went on to say that they have not received any advice whatsoever from the bank - they said the interactions have been along the lines of "why don't you have Kiwisaver yet".
Interesting.
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It's a convenient position to say that the regulations should be soft on banks because they are so big and see so many consumers.
But I would like to see the results of a survey of the banks that shows the % split of the bank's recommendations over the last 6 months to their customers in all of these product categories
Kiwisaver
Life Insurance
Mortgages
F&G insurance
between
(a) the bank's own or white-labelled products on the one hand and
(b) independent 3rd party product on the other.
My guess is the split would be well over 90% own product and well less than 10% independent. In some categories, I would bet the % would be insignificantly different from 100%/0%.
In most other industries, that would be called pure sales.
We should really compliment the banks on the way they have completely captured the regulators, and it seems now an academic.