Exiting the financial advice industry is unlikely to have any impact on the profits of the major Australian banks as the ‘relatively small’ profit loss will be offset by reduced regulatory risks, according to Moody’s Investors Service.
In a report looking at the royal commission’s impact on bank profitability, Moody’s said many banks were looking to exit the financial advice space due to the challenges caused by regulatory obligations.
“For banks, the provision of financial advice has proven to be a complex business with significant compliance and regulatory requirements,” the report said.
“Due to these difficulties, some banks have divested, or are in the process of divesting, their financial advice businesses as they move away from a vertically integrated financial services business model.”
However, the report added that due to the relatively low input advice plays in bank profitability, these divestments will have little or no impact.
“This shift will have little impact on the banks' credit profiles because the benefit of reducing compliance and regulatory burdens offsets the loss of relatively small profit contributions from financial advice,” the report said.