Did banks misjudge financial planning?

Banks and other financial institutions have lacked the hands-on advice experience necessary to make wealth management work for them, according to Connect Financial Services Brokers chief executive, Paul Tynan.

Pointing to the number of institutions seeking to exit some of their ownership of financial planning in Australia, Tynan said history would be the judge of whether their ownership of financial planning in Australia had failed to live up to expectations.

He detailed the Australian institutions already well advanced in terminating their financial planning businesses such as Suncorp last November announcing the closure of its risk advice focussed Guardian Advice and Suncorp Financial Planning ventures and ANZ minimising its Asian activities and reviewing the future of its retail financial services operations.

Tynan said it was not hard to see the reasons for the failure: "It simply comes down to the institutions believing that a single standalone perfect business model was achievable and the utopian structure could successfully address the complexities of delivering advice in the modern era".

"The situation was compounded further with management and their battery of consultants striving to develop strategies and infrastructures without the benefit of ‘hands on' advice experience and lacking this intimate understanding and appreciation — their efforts were doomed to fail," he said.

"In simple terms, modern financial planning models must be flexible, fast and ‘ahead of the curve' in order to anticipate and satisfy the growing diversity and complexity of client needs. Large institutions just don't have the capacity to respond quickly and lack resources to support every project and priority within its structure."

Tynan claimed institutions had always seen financial planning as distribution for their proprietary products or as a way to maintain clients in these channels.

"What institutions will do with these planning businesses and their future strategy will depend on who owns the client," he said. "Some planners may be surprised when they read their agency agreements to see who really owns the rights to the client or the revenue."

Tynan said the answer to this question would determine if the planner had an asset to sell or transition if their institution decided to sell off the financial service business.