Two weeks to change banks
HERE we go again: two more weeks of publicly, appropriately and necessarily, lacerating naming and shaming? Or verging on gratuitous bank bashing?
The answer you might provide will largely depend on your point of view and your specific point of reference – your personal intersection with a banker or financial adviser.
But in the bigger picture, the next two weeks should provide the big four banks with a very loud wake-up call and also some very clear strategic direction.
The next two weeks will be on a completely different plane to last month’s lacerating royal commission focus on misconduct by banks and other financial institutions.
That zeroed in on consumer lending. That’s absolute banking core; it’s what banks don’t just ‘do’ as part of a portfolio of services; without it the banks wouldn’t exist.
The banks can’t just walk away from it if it’s shown to be ‘too hard’; they have to get it ‘right’. So in this absolutely basic sense, what the RC has exposed and what it will say in its reports is an ‘instruction manual for banks’.
That’s ‘instruction’ in two subtly different but important senses: you will do it as we demand, and this is the way you will do it.
This fortnight is very different: it’s about something – financial advice – that banks do not have to do and arguably should never have got into doing.
The practical reality – and what is clearly the RC focus – is whether bad practices were institutionalised and/or excused or overlooked; and then how timely, appropriate and rectifying was the bank’s response.
No, my point is that banks should never have done ‘financial advice’ at all; or at least, they should not have done it (and broader financial services and management) as pervasively and aggressively as they did.
If the banks – the human beings that comprise their boards of directors, senior executive teams, and in particular the CEO – are smart, they will receive just one ‘instruction’: get out of financial advice and the provision of non-bank financial services and products.
It’s essentially and irreversibly a ‘no-win’ situation. The whole basis for being in financial advice and associated services is to generate a conflict of interest.
A bank cannot ‘cleanly’ generate an appropriate return from financial advice and associated financial services like it does with core banking – borrowing at ‘X’ and lending at ‘X-plus’.
It all seemed so different back in the 1990s when banks started their aggressive push into what was initially called ‘funds management’ and became known as ‘wealth’ – as a cack-handed attempt at branding.
While the idea of having a teller try to sell someone a $300,000 home loan when they came to the window to deposit or withdraw $200 was always pretty silly, at least it stayed within the banking frame. Trying to get that teller to initiate a whole advisory relationship was fraught with challenge; and even more fundamentally, it has never really worked on the most basic metric: generating a good enough profit.
And that’s before you factor in remediation costs and brand damage – even if that misconduct is dramatically overblown – it was actually fairly marginal when you consider the number of customers and dollars.
The banks have started pulling back from ‘wealth’. The next two weeks is just going to confirm that.