Economics consulting firm Macroeconomics prepared the Review of the Major Banks: Control of the Wider Financial Sector report for the Customer Owned Banking Association.
The report reviewed the four major banks’ annual reports between 2004/2005 and 2012/2013 – as well as relevant IBISWorld industry reports.
The report found the big four banks accounted for 34 per cent of total funds management revenue – and when other major players such as Macquarie and AMP were included, the market share was as high as 70 per cent.
When it comes to financial planning, the big four banks and AMP control 49 per cent of total industry revenue, said the report.
The Macroeconomics report argued that a lack of competition in the financial services sector would be likely to lead to a misallocation of private savings – as well as contributing to inefficient investment decisions.
The report proposed a number of steps that could “counter the trend in rising oligopolistic behaviour”.
“An initial step … would be to charge ASIC with responsibility for production of a consistent set of annual market share indicators for the six activity areas examined in this report,” said Macroeconomics.
Another “proactive step” would be to formulate policies that prevent any major player from taking a further significant stake in financial planning or funds management unless they make a similarly-sized divestment, said the report.
Going further, steps could be taken to curb the vertical integration across product origination (wholesale and retail funds management), distribution (retail financial advice) and “the overwhelming control of the financial services delivery and management infrastructure (fund platforms)”.
“This would require a set of policies that broadly adopt the kind of approach taken in the enactment of the 1930s United States Glass-Steagall legislation,” said the report.
Such an approach would limit or prohibit the major players from owning or controlling both the product origination and the distribution arms, said the report.
While the report acknowledged there is a trade-off between competition on the one hand and financial system stability on the other, it pointed to the “stifled innovation” of the last decade.
“Why hasn't the system fostered the development of new financial products that help retirees deal with the risks associated with longevity?” said the report.
“This is the kind of foreseeable product (given a decade of Treasury warnings regarding population ageing) that an innovative market should have already catered for by now,” it said.
