Listen to Simon address some key topics around:
- The impact Hayne Royal Commission have on the financial services sector
- The banks are pulling out of wealth management. What opportunities does this open for smaller companies?
- What can we offer that the banks can’t
Q: Simon Madder, what impact is the Hayne Royal Commission having on the financial services sector?
A: I think in its simplest form, it’s shining a light on some practices that were no doubt fairly questionable. It’s making it very clear that putting the client first and making sure that advice that’s in their best interest should be the first and only thing that’s considered. If you expand it out, there’s a few other things that are happening around educational standards and makings sure the most qualified people are giving that advice that’s in the best interests of clients, making sure the clients are well protected for the future. I think across the education and separation of product and making sure the best interest duties are focused on can only be a good thing for the clients.
Q: Nonetheless, it is having an impact on the industry, isn’t it?
A: I think it is having an impact on the industry. If you look at it over the last 10 years, there have been various inquiries or moments between changes in legislation whatever it might be. Everyone has accepted there needs to be better advice. I’m hoping through this inquiry (there will be) a real separation of the product and the advice they get is put at the forefront. So absolutely it’s impacting the industry, whether it’s a large institution or more what is considered independent, although you have to be very careful in the use of that term – they’re called non-bank owned advisory firms – absolutely it’s having an impact and rightly, clients are asking more questions and that can only be a good thing I would have thought.
Q: It would mean though that every financial services firm would have to double check their procedures, wouldn’t it?
A: Absolutely, completely. I think when you’re giving advice to clients, you’ve got to make sure you have a reasonable basis for that and you’ve got to make sure you have the technology that can track you’re actually delivering the service standards you are promising client, be that reviews, be that the basis of the advice, how you collect the data, how you store data, all those aspects play into it. So everything from conflicts of how you go about thinking of how you go about giving the advice to the clients how you actually collect the data and how you deliver that advice, everything has been brought into question and rightly so.
Q: I wasn’t too surprised by the findings of the royal commission although some of them were very striking. What was your response?
A: I think whenever anything like this is occurring, you actively question your procedures, your own processes that you’re going through, from board level all the way through management and to the advisory level you’re checking and double checking you’re as good as you can be around those things. I’m careful how you state these things but the perceived or actual mis-selling of products to people, whether that be on ten banking front or the superannuation side of things around how SMSFs might have been promoted to people. I think those are some of the things that are quite, I won’t say surprising because you’d anticipate that would be some things that probably haven’t been done as well as they could have been. That’s been an obvious standout I think through that process. Again, it goes back to where started the conversation when you asked me the first question. If the client’s best interests aren’t being put at the centre of everything you’re doing and you[re thinking we have this product we need to sell, and the owner of that product is then seeking to incentivise people to sell more of it, I just can’t see how that can work out well for the consumer or the client. I think that product-driven process and what the life insurance industry evolved out of, cutting that tail and moving on is the key thing. I think once that can be done and people take their responsibilities very seriously and act accordingly, then the outcomes are true. But some of the mis-selling and mis-delivery of those things is highly concerning.
Q: The banks have been taking measures to address it. There have been all sorts of changes at all of them actually in response to the royal commission and the very noticeable trend is they’re pulling out of wealth management.
A: It’s interesting isn’t it.
Q: What’s your view about that?
A: I think when you look back at the last 10 or 15 years, and probably beyond that, I think the concept of trying to deliver clients more services or additional products, you can see why banks decided to get more involved in wealth management, and superannuation and life insurance. You can understand the logic they have put in place. And probably more broadly, if you look at it even further, if you look at the investment banks as well. They have suggested they don’t want to be involved with and retail financial advice moving forward. So I understand some of the decisions that have been made and to an extent some of it has been put in the too hard basket and better to focus on the core business of banking. I think you can understand that. I think when you read press around Westpac have been the only one that decided that they won’t continue to have an involvement, they see the logic for their customers, that’s interesting so they’re probably a bit of a standout. But you can understand with some of the challenges that have been faced and probably trying to disentangle the product from the advice piece why the majority of the banks and the investment banks have headed away from it and focusing on their core business. For a firm like ours, we don’t have a proprietary product. So for us being able to deliver advice and services to customers has been the key thing for the last 20 years. So that is our core business. We see an opportunity that will come from some of the changes that these banks are making and move out of and there are lots of different dynamics playing out, whether it’s educational standards, whether it’s banks moving out of wealth management generally and then advisory groups like us wanting to grow and deliver more value to our customers and new customers. I think opportunities will present. I think it’s definitely going to get reshaped over the next few years.
Q: And so this will be an opportunity for smaller companies to move into wealth management.
A: I think so. We’ve got to be very careful in having this conversation as to which layer you’re talking about within wealth management. Obviously there’s platform, and then there’s funds management, then there’s advice, then there’s dealer groups and various other things, and it’s easy to lump everything together and make pretty broad statements but I think smaller groups that want to attract high quality advisors that have the right educational qualifications, there will be people that flow out of the banks and institutions that are used to having support and will need some support and won’t necessarily go and get their own license and try and do it themselves and that will present an opportunity for companies like Prime and other people who play in this space. And I think if there’s 25,000, or thereabouts, financial advisors in this country and the educational standards are going to change the way that has been proposed, you could see a substantial drop off in numbers so what is that going to mean in terms of how advice is delivered to clients if there is 20 to 30 to 40 per cent fewer advisors to do it and the need hasn’t disappeared, then how will that play out. Presumably, people that are already and continuing to operate in that space will be presented with opportunities to grow.
Q: The $64 question is what can these smaller companies offer that banks can’t?
A: I think in it’s simplest form, personalised service. I think there’s a challenge with getting too big and I think if you don’t have – and these are some of the things that have become quite obvious – if you don’t have the right systems and processes and you’re not close enough to the customer or client, then the theory of what you’re trying to do versus the practice can become quite different. So if you’ve built your business starting first with the customer or client then surely in this environment all you have to do is continue to do more of that and hopefully get better and better with more robust processes and systems. I’m not suggesting that the banks haven’t in the past put clients first but as you stated at the start, perhaps that some of the instances that have come out here is it’s been more product driven than advice or service based so I think it does present opportunities for us to keep doing more of what we do now and hopefully in a growing environment.
A: So in a sense you can make a better go of it than the banks because you’ll be offering a more personalised service.
Q: I’d absolutely hope so. We were founded by accountants as a business and the concept of an accountant coming from a fiduciary basis where they always had a focus in structure and strategy for the client, that serves us well in our DNA as we moved into superannuation and investment management. What we’re trying to do is to have the client have a more complete experience with a trusted group of advisors where product isn’t the central theme. I think if you service customers really well and you focus on their needs, then the rewards will be long term. So I think we are well-positioned, absolutely.