How the banks plan to ace advice

I would put any of our senior planners toe to toe with any of those in a recognised non-bank practice” is probably the best indication of where the big four banks see the current and future direction of their branch-based financial planning groups.

It is a statement made by ANZ Financial Planning general manager Mike Goodall, and his counterparts within the other major banks have also moved to ensure their advisers are no longer subject to the old myths and misconceptions surrounding advisers working for the ‘big four’.

It has actually taken about five years for the financial planning arms of the big four banks to reach this point after making their initial plays for dominance in the advice market in the late 1990s.

While they had taken up strong positions in the advisory market, those positions were primarily focused on adviser numbers.

The people who head up the bank-based planning groups will tell you that what is going on within their advisory groups today is much different than in 1999 and 2000.

The main game, not just a warm-up

One of the key changes is moving away from the mindset that planners operating within bank-owned networks or within bank branches are at the lower end of the advice spectrum.

The big four have long had private bank and private client advisers, but they are now seeking to overturn the image of advisers in the branches, which has dogged them for some time.

Westpac head of financial planning Justin Greiner says the widely held view of planners within bank networks carries negative connotations that are no longer true.

“Banks will always have a role to play as training grounds for advisers, but we have worked hard to ensure advisers in the bank are offered a career, something which wasn’t as clearly defined in the past,” Greiner says.

“Advice has also become more sophisticated and has grown with our clients and as a result, we can segment the advice market more clearly. This means we have moved from an acquisition model, which we have been guilty of in the past, to an ongoing relationship model of sales and service with deeper client relationships built inside a bank structure.”

However, Commonwealth Bank network financial planning general manager Tim Gunning says banks are still one of the few places where new advisers can enter the industry and get training across a wide range of client types and expectations.

“At the entry level, banks can spend time and effort training advisers, which does not always happen in small and medium dealer groups,” Gunning says.

“The business model for planning advice within banks has changed and advisers can get good professional grounding in a large corporate. The size of banks means people do leave for outside, but it is not the training ground for non-bank groups that it once was.”

According to Gunning, the reason for this drop-off in departures is the banks have begun to offer the same advice services, as well as support to advisers, that many non-bank and boutique groups have on offer.

Quality not in question

Goodall also dismisses the idea of bank-based advisers not being on par with those in other adviser networks, stating the level of quality has lifted over the past 10 years.

To back up that claim, he says, ANZ has adopted a policy where advisers coming into the business need to be degree qualified as well as hold the Advanced Diploma in Financial Services.

The group will also require all advisers to hold Certified Financial Planner (CFP) status by 2007, in line with the same move by the Financial Planning Association (FPA).

Part of this drive for quality has also been to reject a push for quantity.

Goodall says ANZ aims to add about 50 planners a year, about one-sixth of its current number.

The other bank-based advisory groups are heading for similar targets.

Adrian Hondros, general manager of National Australia Financial Planning’s personal division, says by the end of this year all National planners will hold the Advanced Diploma of Financial Services and about 25 per cent of the bank’s 360 advisers will be CFP accredited.

These targets are partly a recognition of the difficulty in finding quality advisers who are keen to work within a bank-based structure, but also that adviser numbers are no longer the true measure of a dealer group.

The changing face of advice after the introduction of the Financial Services Reform Act (FSRA) has also had a big impact, as have some of the commercial realities of being in business as an adviser.

“There was a boom in the valuations of businesses which encouraged the ownership of planning practices, but that has settled down with the number of self-owned businesses falling in the aligned and boutique space,” Gunning says.

“The mindset has turned to seeing advice as revenue generated along the way and not the value generated for a future sale.”

Product flog a thing of the past

Greiner says there has been a much-needed shift in the banks during this time towards the sale of advice, not product.

He says in the case of Westpac, the bank is being promoted as the advice brand and the product solution is sourced through BT Financial Group.

“This is the message all the banks should be promoting because there has been a stigma in the past regarding the closeness of bank-based advice and product,” Greiner says.

The introduction of BT’s wrap account and model portfolios has shifted that focus, according to Greiner, with more emphasis on advice, as product selection is covered by the course of action chosen by the client.

“From our customer base, we can see that some do not have the right strategies and we owe a duty of care to give appropriate advice.

“In the past, we were not as good at getting the planner right for client needs, but are now looking at no advice all the way up to a full-service model.”

His comments are echoed by Goodall who says the product flogging perception of bank-based advisers was a fair comment — in the past.

Goodall says ANZ has shifted to an ‘independent’ advice model over the past four to five years that should “dispel the perception that if a client goes to the bank they will get an ANZ product flog”.

A similar model has also been rolled out at the Commonwealth where Gunning says the bank has disbanded the model of limited advice and removed defined roles “as it was not a good customer experience”.

“The old model suited a transactional approach, but we have moved away to an advice model based on consumer education and demand.”

For the National’s part, it first unveiled plans to move away from a product-focused model in 2002 and introduced it to advisers within the group in April 2003 following a collaborative process.

Hondros says the National looked to develop a model offering clients a total wealth management system from advisers focused on advice through what it calls the lifestyle financial planning process.

Like its competitors, this process aims to meet long-term goals and build adviser relationships with clients.

In fact, the National has forced advisers to move away from product by removing any remuneration around product or platform recommendations, with advisers having to earn revenue through advice and services.

Small balances = large opportunity

There is another key driver for the banks — the average bank customer is now a valuable asset when it comes to the provision of advice.

Gunning says the introduction of the superannuation guarantee contribution (SGC) in 1983 has meant that many bank customers have sizeable super, investments and financial obligations, but are still not covered by other advisory groups.

“Many advisory groups chase high-net-worth clients but the average client balance at the Commonwealth is $100,000.

“There is a huge market and real opportunity by looking at those not retiring now but in 20 years and as a bank we can offer them other services which support the profits as well,” Gunning says.

“This is a legitimate market space but it needs the scale which the banks have. We need efficient systems to meet our FSR requirements, we need to be cost-effective and we need to offer a range of services, and due to our size we can keep costs low.”

However, Greiner says scale does allow the bank’s advisers to offer greater flexibility in dealing with clients.

He says it is the mass affluent market, those who would not traditionally rate as high-net-worth, who have the greatest need for advice and this market offers a prime opportunity for bank-based advisers.

“Our planners will charge for advice as their clients’ needs change. We have not yet defined those amounts, as we are still considering our client segments, but the unbundling of fees will allow clients to choose what they pay for, from a toe-in-the-water approach to full service advice and implementation,” Greiner says.

In a bid to ensure its advisers are rewarded for their work the National has introduced tiered fees, which cover pure advice, implementation and ongoing service.

The effect of this removes any need for subsequent product sales and Hondros says it creates a distinction between financial advice and implementation.

Building the new pillars

It should be no surprise then given the push for cost effectiveness that each of the banks has centralised some services, but at the same time ensured their new style of advice is adequately supported and resourced from within.

Westpac, still in the process of implementing its advice model as part of Project Sunrise, has standardised systems and centralised its paraplanners and compliance, but has segmented those along client lines. This reflects what will take place at the adviser level as part of Greiner’s push to get past ‘one size fits all’ advice.

Goodall also points to a shared services model, with a particular emphasis on compliance within ANZ — consistent with the risk averse nature of banks — while Gunning says the Commonwealth will use experts in particular areas to beef up its core adviser services.

“This is about creating a group-wide advice model and the advice to a $100,000 client is not that different to those with $2 million. There is a myth that says it is different and we would argue that it is not so.”

The National has also adopted a feeder model in which clients will be directed to an adviser of appropriate experience according to need.

As such, the bank has introduced wealth managers that effectively act as ‘spotters’ for the financial planners and senior planners, and provide service to retail clients.

“This team structure recognises the diversity of customers that come through the bank channel and delivers a clear career path, which is important to provide a valued career proposition for the financial planners,” Hondros says.

At present, it has about 60 of these three-tiered teams operating with those in regional areas working out of more than one location.

While the benefits of this model within each of the banks sound encouraging there are some difficult questions, including who owns the relationship and is it portable if any adviser chooses to leave the bank planning group?

Greiner says how the banks respond to these questions will be critical.

“We remove the FSR hurdles and help them build a business, but we are aware the trade-off is the client stays with the bank. We are looking at ways for relationships to be portable and if the banks can get this right, they will offer advisers a good value proposition,” Greiner says.

“On the other hand, if we can offer an advice career with appropriate rewards using industry standard products and services then it removes the need for advisers to look externally.”

Hondros also cites positive responses to the National’s move, with advisers claiming they are better supported and clients are receiving higher levels of service.

This has led to increases in revenue and productivity across the business, with customer referrals from personal bankers tripling since October 2003.

Taking it to the next level

If it seems there is some convergence in models being developed by the banks, remember they are not developing something in a vacuum, or something that is new to the industry.

These are models that have existed and grown in non-bank advice groups for some years, but it is the leverage the banks can bring to these markets which take them to the next level.

Goodall says ANZ has for some time had performance data but is now gathering its own research on customer service and quality of financial advice, which is part of a greater model of continuous improvement across the whole ANZ advice business.

Taking it a step further, Greiner says the future plans for Westpac are “about changing remuneration, client relationships, products, software, qualifications and the work needed” to offer financial planning advice to his bank’s clients.

“Planners working for banks have a bad name, but the quality of advice is comparable across the board and it has been too easy to tar bank-based advisers.

“Yet the line between banks and the boutiques is blurring and I no longer see it as bank-based planning, but as planners giving advice in the same way many others do who work for other financial services groups.”

Tim Gunning, Mike Goodall, Justin Greiner and Adrian Hondros will be participating in a panel debate on ‘What will the Consumers’ Association say about salaried planners in 2010?’ at the FPA Annual Convention in Sydney on December 1-3.