Clarion Call for Advisers

If financial advisers ever needed a clarion call it was delivered in the findings of The Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry (Commission).

A financial services industry shake up has started.

Reforms should follow. How deep and wide ranging the changes will be is unknown but one thing is certain, the financial advice sector will face greater scrutiny. Compliance could become even more onerous adding to administrative cost pressures. All the while the Australian public’s loss of faith in the big bank financial advisory services could rub off onto the entire industry. But this only represents a risk for financial advisers who are unwilling to adapt.

Change brings disruption along with opportunity for those quick enough to adapt and find new ways to service clients. Think digital technology, think fintech, and deliver better more efficient services to grow your business.

The Commission found unwarranted charges for the management of cash and safe assets on platforms. Progressive financial advisers will know that digital technology now offers cost and time saving solutions for cash and term deposit management for financial advisers and self-directed investors.

Benefits of the Royal Commission

Much will continue to be made of Commission’s findings. So it should. Regular scrutiny of our institutions is healthy.  The sheer size and behaviour of the Big Four banks often puts them in the spotlight. Even financial advice and fund management divisions are being held to account. Journalists are delighting in the newsworthy material the Commission is producing. Financial advisers should note the impact the findings are having on public perception of their profession.

Though messy on the surface, the scrutiny is part of an ongoing force that promotes financial market integrity. Revelations so far support the case for self-directed investing unless financial advisers adapt and find new ways to service clients. Digital tools are more important than ever especially for routine essential tasks such as cash and deposit management.

The digital revolution is making the task of managing cash and term deposits easier. Let’s put things in perspective by considering the bigger picture and opportunities in cash and deposit management.

The Bigger Picture

Our ongoing scrutiny of financial organisations is a force that moderates market power and contributes to our world-class financial system. The Royal Commission is motivated by the wrong doings of banks however smart investors should appreciate our financial system’s many positive qualities.

The Financial System Inquiry Final Report released on 7 December 2014 recognised the importance of the financial sector and found “Australian authorised deposit-taking institutions (ADIs) are generally well placed in these respects, with strengthened capital and liquidity requirements, low loan losses, a business model focused on domestic and commercial banking, sound governance and a AAA-rated Government.” (1)

Motivation to Innovate

The Big Four dominate the banking industry although the smaller banks can be the source of opportunity.

  • As at the end of the September quarter 2017, the major banks held approximately three-quarters of total assets held by ADI’s (2) in Australia (3).
  • Yet they made up only 2.7 per cent of the total number of ADI’s in Australia (4). The remaining banks are smaller and a growing number of new entrants from overseas.

Investors intuitively understand the benefits of competition and so do financial advisers. Competition is driving innovation amongst the smaller banks, for they can only thrive by finding better ways to attract and service customers.

Some Implications

The system is working though it can look a little messy on the surface.

Reforms are inevitable; the big banks are already making moves.

Any action that promotes financial market integrity and competition is good for investors.

Financial advisers could add value for their clients immediately by exploring term deposit offers beyond the Big Four. The need to win customers should encourage competitive term deposit offers among small banks along with a willingness to make their offers available by way of new digital technologies. Depositing and moving money is becoming easier as smaller banks are willing to link with innovative term deposit or cash management platforms.

Opportunities abound for progressive financial advisers and they would benefit by looking beyond the Big Four and adopting new digital solutions.

 

(1) http://fsi.gov.au/publications/final-report/chapter-1/strength-in-the-financial-system/

(2) Authorised Deposit-taking Institutions are licensed banks http://www.apra.gov.au/adi/Pages/default.aspx

(3) The Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry; Some Features of the Australian Banking Industry, Background Paper 1

(4) Ibid

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