AIOFP thinks institutions may get back into advice

The AIOFP – which is supporting the ifa Excellence Awards 2023 as a gold partner – said it believes institutions could re-enter advice at some point in the next decade.

AIOFP executive director Peter Johnston’s prediction follows comments by Adam Holster, NAB professional services banking executive, that the bank is there to support advisers rather than provide advice.

Mr Holster was echoing comments previously made by NAB chief executive Ross McEwan on the possibility of the big four bank re-entering advice post-Quality of Advice Review (QAR).

Asked about the Quality of Advice Review’s (QAR) recommendation to allow banks back into advice in July, Mr McEwan told the House standing committee on economics that the change in legislation would have to be “dramatic” to “convince” the bank to “go back into that market”.

“I have no plans to do so at this point in time,” Mr McEwan said.

He explained that it would have to be done in “quite a different way” that allows for affordable advice that is good for customers and that NAB itself could afford, while adding that “it would have to be quite a change in legislation to twist my arm to go back into it”.

When asked whether he believes institutions would not re-enter advice, Mr Johnston told ifa that he has “no doubt that we can trust institutions in the short term”.

“But when you consider the biggest lump sum cash in Australian history is superannuation – which has over $3.5 trillion in the industry – I can’t see any future where bank executives want to stay away from it,” he said.

“In the short term, we believe them when they say they have no intention of getting involved with the wealth management industry because the margins aren’t quite there. But when you have huge volumes that make up for not having fatter margins, we think it’s a short-term measure.

“We think institutions will certainly be getting involved at some point in the next decade.”

However, Mr Johnston warned against this move, stating that, “We don’t think they should be given a second chance” as their strength does not lie in wealth and funds management.

“If you look at the track record of the complaints lodged with the Australian Financial Complaints Authority (AFCA), the majority is against institutions. If you look at product failures over the last 25 years of failed, frozen, and impaired products, most of them are with the banks or bank subsidiaries,” he said.

“The banks and the bank subsidiaries have super funds that are expensive and don’t perform all that well. They’ve got a lot of sticky clients because they’re attracted to the brand of the bank. But over the long term, we know that if you’re in an underperforming fund, it will cost you dearly at your retirement.

“They should just stay with banking where they excel because banks are very conscious of transactions. Whereas financial advice involves human interactions.”

Mr Johnston was asked whether replacing best interests duty with the proposed good advice duty under recommendation four in the final QAR report handed down by independent chair Michelle Levy could convince institutions to re-enter advice.

“Of course,” he responded.

“They don’t like the best interests duty because it blows their vertically integrated models out of the water, which is all about internal advisers selling internal products regardless of their performance. But if it’s maintained we think it’s good for consumers and will keep banks out of it. Whereas the good advice concept is good for only one stakeholder and that’s the institutions.

“The QAR document was very clever and had pleasing aspects for most stakeholders. But overall, it’s about taking the liability of funds management and performance away from the bank so they and other institutions can get back into advice at a later date.

“We don’t think that’s good for consumers. So, we don’t think changing the best interests duty would be in the best interests of consumers. As stakeholders, we all need to be doing what’s in the best interest of consumers.”

Awards pushes advisers to excel

Commenting on the gold partnership with the ifa Excellence Awards 2023, Mr Johnston said the awards program sets a high benchmark for the independent financial advice industry that other advisers could aspire to and emulate.

“We think it makes sense to have awards which keep industry members focused on doing better, which can only end up in the best interests of their practice and their clients,” Mr Johnston said.

“We think ifa is the leading stakeholder within the advice industry. We’ve always supported it with our views. We think it makes sense to come on board and help the cause.”

The ifa Excellence Awards will be held on Wednesday, 6 December at the Four Seasons, Sydney.

Click here to buy tickets and take part in the celebration!

For more information about the awards program, click here.