Banks piled into the wealth sector in the early 2000s with hopes of using their vast retail networks to cross-sell financial advice, investment products, and life insurance.
In recent years, it has become clear that in many cases the strategy had failed, as commission income has been phased out, and advisers have faced tougher rules requiring them to act in customers’ interests.
Hugh Dive, chief investment officer at Atlas Funds Management, said these problems were known before the royal commission, and many banks were already planning to exit wealth, but commissioner Kenneth Hayne’s scrutiny further highlighted the problems with how customers were being treated.
“A lot of conflicts have been laid bare over the last 12 months,” Mr Dive said. “It’s fair to say that the royal commission has made it harder [for banks] to extract themselves from these businesses.”
PM Capital portfolio manager Uday Cheruvu also said the royal commission had added to the difficulties facing banks’ wealth arms – and their plans to dispose of them. Banks may find it hard to sell these businesses to investors at prices the banks wanted, he said.
“What the royal commission did was say not only is it not working, it’s actually creating a negative to your brand,” he said.
Westpac expects to complete the sale of its advice business by the end of June, but the timing for some of its rivals’ plans is less certain.
CBA said it “ultimately” planned to de-merge its financial planning, super and mortgage broking businesses, but did not disclose a timeframe.
ANZ has sold its financial advice dealer groups to IOOF, but whether it can also sell its superannuation business to IOOF, as planned, will be influenced by regulatory action against IOOF and ANZ trustees approving any deal.
ANZ will still be able to sell its life insurance business to Zurich, irrespective of the IOOF deal. NAB expects to spin off MLC in 2020.
Bell Potter analyst TS Lim said the royal commission had helped to remind investors about the potential costs for any further compensation owed by the banks’ wealth businesses. He pointed to the experience of United Kingdom banks, which have faced years of costly remediation over dodgy insurance sold to customers.
“Because these businesses are facing remediation and potential class actions, potential buyers will probably say ‘nah it’s too hard,” Mr Lim said.
Principal of consultancy Digital Finance Analytics, Martin North, said the royal commission’s scrutiny was the “nail in the coffin for financial advice,” and the banks’ strategy of attempting to cross-sell wealth products was “flawed.”
“The whole concept of wealth management as an additional service to create value for the bank and shareholders basically failed,” Mr North said.
Clancy Yeates is a business reporter.