Unlike its peers, Westpac is still intent on continuing in wealth management, including the expansion of its Panorama wealth administration platform and a focus on offering its breadth of services to customers in insurance, superannuation and private wealth. CEO Brian Hartzer actually calls it “doubling down”.
However, financial advisers steering clients towards such products and services will be completely independent of the bank, while the bank will be free of future liabilities related to the advice.
And while Westpac’s divorce proceedings may have taken longer in the planning, the execution will be almost instantaneous. In ironic contrast to the indefinite delays facing NAB, CBA and ANZ in extricating themselves from their various messes in wealth management, the new Westpac model will be in place by the end of this financial year.
Brad Cooper will leave within a few months as the remaining stand-alone BT business gets absorbed into the main bank. Westpac will cease accepting any new customers for financial advice from now on.
Instead, around half of its existing customers – expected to number 9000 to 10,000 – will be able to choose to shift to a boutique advisory firm, Viridian. Others will be assisted to find alternative “solutions” but there’s no doubt many will end up with either cheaper “robo-advice” only, very “general” advice from their banks or no advice at all.
The evidence is now in
That’s because inevitably, the up-front and direct cost of providing high-quality, independent advice will be more expensive. A lot of them won’t want to pay the extra money – nor be persuaded they really should. After all, the evidence is now in. Too many customers were either worse off after receiving lousy, self-serving financial advice or were paying fees for no service.
So why can smaller advice businesses hope to make a profit when better-capitalised, better-resourced, better-experienced banks cannot?
Westpac’s financial advice business incurred a $53 million loss last financial year, excluding remediation costs which at Westpac alone are running at close to $500 million and counting. And counting.
Hartzer points out it used to be possible for banks to run a profitable financial advice business based on average customer outcomes, especially when this included an underlying stream of relatively high-fee revenue and commission payments.
But this convenient arrangement for the industry was gradually strangled by ever-tighter regulations on conflicts of interest. This included the ban on commission payments despite overly generous grandfathering arrangements, compounded by the growing desire for truly independent advice. This totally undermined the economics of the model. The drama of the royal commission then killed off the increasingly poisonous politics for the banks.
The changes meant they could neither make money nor restore their battered reputations while battling on.
Yet Hartzer argues niche businesses can still do well if they can target particular audiences with high-quality, independent advice that customers with more complex needs are willing and able to pay for.
The prospects of getting any eventual remediation should things go wrong may well be worse, of course. Small, unaffiliated businesses are not known for having deep pockets in a crisis.
Legal responsibility
But such risks are supposed to be much reduced in a world where financial advisers have the legal responsibility to act in their clients’ best interests, where regulators are belatedly more aggressive and where the industry is becoming more professionalised. We will see.
According to Hartzer, it should be possible for Westpac to refer clients to a panel of financial advisers in the same way it refers customers to lawyers and accountants.
Viridian will get no preferential treatment beyond access to BT’s book of former clients in order to offer them the ability to opt in to its services. It has long-term Westpac connections given it was established by former Westpac executives and around 90 of Westpac’s current advisers will move across but Viridian will operate completely independently. Two other advice businesses, Securitor and Magnitude, which have operated under Westpac’s licence, will have the option of self-licensing or moving to Viridian or another licensee.
Past failures will continue to haunt BT’s bottom line as well as its reputation. Westpac, like other banks, is still grappling with the cost and confusion of remediation of wronged customers from associated dealer groups even though it is close to finalising the process for its salaried advisers.
Future failures in financial advice? No longer Westpac’s problem – to the great relief of both Hartzer and the departing Cooper.
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