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Should banks take the lead in retirement planning?

4 minute read

A professional has suggested that local banks are well-positioned to assist customers in navigating the retirement phase of their lives.

Given Australia’s advice gap, and their rich data on spending and saving patterns, banks would be “well advised” to look to wealth as they seek new sources of growth, EY’s Douglas Nixon has suggested.

In an opinion piece published last month, the EY Oceania banking and capital markets leader explained that in light of the increasing advice gap in Australia and the already established wealth management prowess of banks, they should assume a more prominent role throughout their customers’ retirement journey.

Mr Nixon explained that by tapping into retirement, banks would not only contribute to closing the advice gap but also establish a reliable avenue for growth in an unpredictable economic landscape.

“Despite the bank’s reporting positive half-year results, several warning signals suggest the gains from the higher interest rate environment are being eroded. Intense competition and slower loan momentum are impacting growth opportunities in traditional retail banking products – a primary source of revenue in the Australian banking sector. Banks are now looking for growth in other segments,” Mr Nixon wrote.

“The market opportunity for wealth services in Australia is considerable. Australia is home to the world’s fifth-largest pension pool. Our pension structure is such that this will only continue to grow above global system rates, substantially outweighing the nation’s relative population size.”

Adding fuel to his argument, Mr Nixon cited Treasury data which suggests that the number of people aged 65 and older is expected to grow from 0.4 million people today to 1.8 million in 2050.

“The banks’ customer base is ageing,” he said, emphasising that this customer base will need increasing access to wealth management services as they transition from income generation to retirement expenditure.

“With their established customer bases, suite of products to serve the end-to-end financial journey, and existing infrastructure, banks are well-positioned to offer a range of wealth management and decumulation products,” Mr Nixon said.

“The banks’ access to vast amounts of customer data, including on saving and spending habits, offers an ideal dataset to build profiles on risk appetite, consumption habits, and retirement timelines.”

Looking abroad, Mr Nixon noted that a pivot to wealth has helped banks abroad redefine their strategic purpose and reposition their institutions within their domestic markets.

“Perhaps, more importantly, such a move would be a logical extension of a holistic approach to support financial wellbeing throughout a customer’s life. Planning for retirement requires people to make complex decisions around sequencing risk and longevity risk, as well as inflation and interest rate risks.

“Banks are already proactively supporting people to save for a holiday or a house with budgeting and spending tools. Wouldn’t it also make sense for them to help Australians plan, save, and invest for retirement?”

The return of banks to financial advice was recommended in the Quality of Advice Review (QAR), which outlined that in order to plug the advice gap, superannuation funds, banks, and insurers should have regulatory support to expand their advisory services.

While Financial Services Minister Stephen Jones has been supportive of super funds expanding their role in advice, he’s been a bit cautious when it comes to banks and insurers.

Just last week, he told InvestorDaily’s sister brand ifa that their remit will be probed further as part of the third stream of the government’s QAR response.

“There’s no doubt if you’re able to crack it in super funds we can create some models which might be applicable. But I’ve also been pretty pragmatic and I said to the life insurers, and to the banks, ‘Tell me what you want to do, that you can’t do’. Let’s try to solve real problems without having to go to the effort of setting up major regulatory overhauls, let’s look at what you want to do that you think you can’t,” Mr Jones said.

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.