Westpac is holding onto BT Financial – for now. But CEO Brian Hartzer couldn’t mask his frustration with the troubled business when he appeared before the royal commission last week.
During his time in Hayne’s witness box, which spanned two days, Westpac’s chief executive Brian Hartzer was grilled extensively about the bank’s financial advice and wealth management business.
As many know, Westpac is the only major bank still holding onto its wealth division. CBA, ANZ and NAB are all in the process of shedding their troubled wealth divisions.
For those curious about BT Financial’s future as a vertically integrated cog in the Westpac machine, Hartzer’s testimony offered more than a few clues.
Westpac is well aware of the conflicts involved with owning both product manufacturing and distribution arms of wealth management businesses. This was a key driver in its decision to get rid of BT Investment Management.
Hartzer admitted that the group is now considering its options with its advice and insurance arms.
When asked what the value is to the bank in owning advice licensees, the Westpac chief executive had this to say:
“Well, I would say that that has changed over time. The general notion was to be able to build scale on our operating platforms, and to provide – to make it easier for us to provide advice to customers, and over time, part of our notion is that by providing systems that make it convenient for people to manage their banking and their investments all in one place, that that would help make us a more attractive bank for people to be with.”
He went on to admit that he wasn’t at the bank when the decision was made to own authorised reps. But he accepted that the efficiency benefit for a wealth manager to own both product and distribution would have been a key motivator.
Westpac’s dealer groups, Securitor and Magnitude, are currently being reviewed as the bank seeks to identify the scale of fee for services issues.
But Hartzer told the royal commission last week that this is already causing problems. Namely, that advice licensees have “different contractual arrangements that vary quite a lot among the different groups. So establishing a fact base is difficult.”
But the clincher came when Hartzer admitted that owning a compliant financial advice business is becoming increasingly difficult for the major bank.
“Advice is inherently a challenging issue to monitor because you’re talking about a subjective conversation between two people at some point,” he said.
“Investing inevitably has a level of subjectivity around it which can mean that with the best will in the world results don’t necessarily come out the way you expect them to. The standards of documentation and proof that we’re now, as a general industry, expected to meet are very, very high, and so the cost of training, hind sighting, storing documents, auditing and the like is very, very high relative to the revenue associated with providing that advice.”
The writing is on the wall. Westpac’s BT sale is only a matter of time.
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