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Royal commission: ‘headache’ for Australian wealth giants

Royal commission: ‘headache’ for Australian wealth giants

Australia’s royal commission examining misconduct in the banking, superannuation and financial services industry will lead to a serious talent shortage in banks and a possible threat to business optimism.

What’s more, with customers likely to think twice about the type of provider they opt for, this will drive growth of the independent advice market, says Heike van den Hoevel, wealth management analyst at GlobalData.

Last week, AMP CEO Craig Meller resigned following revelations of misconduct in the bank. The royal commission found that AMP had been lying to the Australian Securities and Investments Commission for nearly a decade about charging clients for advice that was never delivered.

In addition, the commission also found that the financial planning business of Commonwealth Bank of Australia has been charging fees to customers they knew to be dead.

‘Even demographics that are not typically drawn to independent financial advisors will find themselves more likely to opt for independent advice when they learn their trusted banking partner has been pushing products that are not in their best interests,’ said van den Hoevel

On the flipside, financial planners at Australia’s Big Four banks, namely Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group, National Australia Bank (NAB) and Westpac Banking, as well as AMP, will probably leave to set up their own businesses, he added.

‘In an industry plagued by a shortage of talent, that will be a big headache for Australia’s wealth giants.’

A recent survey by GlobalData shows that 80% wealth managers already agree that it is increasingly difficult to hire new relationship managers or other front-line staff. Moreover, only 35% of the 25,386 financial advisers in Australia hold at least a bachelor degree.

Van den Hoevel said the other impact on the highly profitable big banks will be the need to ensure avoidance of conflicts of interest by moving away from a vertically integrated model.

The incumbents currently provide personal advice as well as manufacture and sale of financial products, including life insurance products, and are believed to hold 80% market share.

‘This will be the biggest change to the industry since the big four banks moved into the wealth space more than 15 years ago,’ he added.

There have been some efforts in this space. At the end of 2017, ANZ announced the sale of its OnePath Pensions and Investments business to IOOF, and CBA divested its insurance business CommInsure Life.

Meanwhile, according to local reports, NAB is exploring the public float of its wealth management unit, comprising fund management, superannuation and financial advice.

The commission was instituted in November last year to look into widespread, multi-year transgressions by the banking and superannuation industry.

‘As the Royal Commission is bound to reveal further failings, the wealth industry, which has previously been on a relentless path of horizontal and vertical consolidation, is about to get a strong push towards fragmentation and divestment,’ van den Hoevel concluded.

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