David Murray’s team released the first batch of responses to the 15 July FSI interim report on Friday.
The interim report asked for responses on a number of issues related to vertically-integrated business models in the financial services sector.
The report asked industry participants whether integration in the banking sector is causing “competition issues”, and whether “the recent trend of greater vertical integration in the wealth management and superannuation sectors [is] reducing competitive pressures and contributing to higher superannuation fees”.
The submissions both of Westpac and CBA devoted entire sections to the issues, while NAB gave the subject less attention and ANZ neglected to mention the phrase ‘vertical integration’ entirely.
Westpac reiterated its position outlined in the bank's initial FSI submission, that the banking sector is indeed “competitive”.
“There is no evidence that vertical integration is having any adverse effect on competition,” the Westpac submission said.
The bank went on to claim that vertical integration has resulted in many “efficiencies and benefits” for customers.
“It has also deepened relationships with customers, meaning providers are highly motivated to provide a high-quality service offering through all of their interactions with a customer, or risk losing a customer relationship entirely,” the submission said.
Turning to wealth management specifically, Westpac said that despite trends of greater vertical integration there is “no evidence” that such integration is reducing competitive pressures and contributing to higher superannuation fees.
“There is also no evidence that these providers are only offering their own financial products to their consumers. Instead, Australia’s investment and platform market is largely built on an open-architecture approach,” Westpac said.
“Platforms do not discriminate in favour of their own products, otherwise third-party advisers will defect to other platforms given the range of alternatives for product owners and the impact on the value of the platform,” the submission said.
Meanwhile, the Commonwealth Bank submission’s chapter on vertical integration begins with a contrite acknowledgement of the conflicts that can arise from vertical integration.
However, the country’s biggest bank goes on to list the benefits of vertical integration for its customers, including a wider range of products; the convenience of a consolidated view of their financial affairs; and the benefits of economies of scale.
Vertically-integrated businesses also offer their customers safety and strength as well as competition and choice, the CBA submission said.
“Vertically-integrated institutions can, and should, co-exist with non-aligned providers to ensure customers have the ability to select the provider who is best placed to meet their needs,” said the submission.
“Commonwealth Bank notes that many independent financial advisers in Australia recommend products issued by conglomerate institutions alongside non-aligned products, ensuring healthy competition.”
The bank recommended that the inquiry should not propose policy changes that would “impact the ability of businesses to structure themselves in a vertically-integrated manner”.
For its part, NAB’s submission focused on its recent move (along with CBA and Westpac) to increase the minimum education standards for its aligned financial planners.
“NAB submits that the benefits of a properly managed and vertically-integrated model outweigh the potential negatives,” said the submission.
ANZ made no mention of vertical integration in the bank's submission to the FSI.
