The past few years have seen a number of large financial institutions exiting their wealth operations – with some smaller organisations following suit as well.
Some of these decisions have been made in light of the Royal Commission, even though the final report made no specific call to ban the provision of advice services in a vertically-integrated model. In light of the Senate Standing Committees on Economics inquiry into the Banking System Reform (Separation of Banks) Bill 2019, though, the Australian Bankers’ Association has suggested there’s no clear reason to crystallise the recent wealth exit into standard practice.
The bill aims to “[enforce] the separation of retail commercial banking activities involving the holding of deposits from wholesale and investment banking activities, such as financial advice, wealth management, stock broking and insurance.”
The ABA noted in a submission that this would involve “drastic regulatory invention,” adding that Commissioner Hayne agreed in his final report that eliminating vertical integration “will likely be costly and disruptive.”
While some banking members of the ABA are “taking steps to simplify their businesses andx sell or demerge some of their vertically-integrated structures,” the submission continued, banks should be able to “retain the flexibility to determine these strategies in the future.”
The submission argued that “bank integration can enhance competition and provide economies of scale that reduce the prices of products and services offered to customers. Integration allows customers the choice of having a single relationship with their financial institution and this can be tailored to meet the needs of that individual, leading to more innovative products and services.”
“While some customers choose to have relationships with different institutions,” the ABA added, “others prefer to deal with one institution. The market should be able to offer this choice and shouldn’t be hindered by such radical regulatory intervention, which is at odds with the findings of the Royal Commission, the FSI and the PC.”
What are the implications for advice?
It remains to be seen how the bill will progress, but the ABA’s submission does acknowledge a desire by some of its members to continue providing wealth services to customers.
We’ve already discussed the growing trend of advice businesses pushing towards self-licensing – along with the costs involved – or gravitating towards smaller licensees, but perhaps the response to this bill indicates the disruption of the industry isn’t quite as clear-cut as originally suspected.
What do you think?
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