Is the return of the banks imminent?

The Quality of Advice Review (QAR), which had a mandate of improving the affordability and accessibility of financial advice, recommended not only that superannuation funds be allowed to provide advice to members, but also proposed extending the same capability to banks and insurers.

While Financial Services Minister Stephen Jones appears to have accepted the entry of super funds with open arms, putting the legislation to pave the way firmly in the second tranche of reforms, he has so far merely said the government intends to consult further on Michelle Levy’s recommendation to allow banks and insurers into advice.

Few in the industry believe the banks are simply out of the advice space for good, for them it is merely a question of how they will come back in.

Eugene Ardino, chief executive of Lifespan Financial Planning, said there is no reason to expect banks to stay away from the wealth management space.

“I would imagine that every industry in Australia would have learned a lot from the royal commission in financial services. Despite the cost to the banks and the instos that are no longer in advice, I think if you look at wealth holistically, over a 10- or 15-year period, they still made a lot of money out of it, and I don’t know if it really damaged their reputations much long term,” Mr Ardino said.

“So, I don’t see why they wouldn’t go back into wealth. In my mind, they wouldn’t just go back into advice, because advice was never that profitable for them. They would vertically integrate and go into wealth, go into product manufacturing once again, and potentially other things.”

Similarly, while the big four banks get lumped in as a singular entity at times, they operate in very different ways and are likely to follow different models if they do look to make a return.

Nathan Fradley, senior adviser at Tribeca Financial, said it will largely depend on the leadership of each bank.

“They all operated completely differently despite the fact they had very similar business models. So, if you brought back financial planning in branches to push financial planning products that were produced by banks, as a sales channel to increase bank profit, then you’re doing it for all the wrong reasons,” Mr Fradley said.

A change in approach likely

Mr Ardino added that with the way the industry has shifted, banks would need to change from advice as a profit neutral proposition to something that could stand on its own.

“The thing with banks, and I don’t think it’s necessarily a bad thing, but they are sales-driven organisations. At their core, they’re not really advice businesses. I think that’s the conundrum,” he said.

“There’s lots of vertically integrated businesses out there that haven’t had any of these problems. If you’re going to have an advice business or purport to give advice, you need to take that a bit more seriously. With the professional standards and education standards that we have now, it will make it a lot harder for them to make the same mistakes.

“They might look at it and say with professional standards the way they are, vertical integration might not be as profitable, and that might lead them to decide not to get into that.

He added: “But I still maintain they get in because there’s money to be made and they have made money over the long term. I just ask the question of how.”

Steve Prendeville, founder and director of Forte Asset Solutions, agreed that there would likely be a very different model in place.

“I think it’s probably going to be led by digital advice. It’s a lot more manageable,” Mr Prendeville said.

“It may be somewhat limited, but with technology with what we’ve seen, both internationally and also now with the growth of AI, harnessing all of that, plus, they’ve got a great opportunity. It is all about the idea of the consumer’s wallet, that they want all parts of it.

“They’ve obviously been licking their wounds. But it’s always been that they come in for 10 years and then they’re out and then they come back in, so it’s history repeating, but I think they will come back. Probably more of a digital-led offering and I don’t think that the previous business model will be re-explored.”

He also agreed that the industry would no longer allow banks to compete using their previous model.

“Vertical integration was highly successful, where the advice component of that did not have to be profitable, because funds management was extremely profitable,” Mr Prendeville said.

“Advice now is such that it cannot be subsidised advice. It has to be standalone profitable. It’s also very difficult to have scalable advice when you’re talking about true holistic advice with client ratios of around about 120 to 130.”

The comments on the current landscape are largely in line with those shared by Ignition Advice co-founder Mark Fordree in 2021, who said that Australia’s biggest institutions were beginning to recognise that “if they don’t do something, somebody else will”, with digital challengers racing to meet the general advice needs of millions of consumers.

“In the UK we’ve had a similar situation, there were a lot of vertically integrated businesses that have walked away from advice, but we’ve seen a seismic change in the conversations now,” Mr Fordree said.

“They’ve solved two issues that every fintech is trying to solve: what’s my customer acquisition strategy, and how do I get their data? They’re now looking for solutions that can monetise that existing client base and help them out, because most of those people do need advice. It doesn’t have to be complex, and it can be delivered compliantly.”

Ignition co-founder and chief executive Mike Giles added: “One of the banks said to us, ‘We’ll be getting back into advice before we get out of it’.”