Westpac chief executive Peter King says the abundance of scams, misinformation and unqualified financial advice online drives him “nuts”.
“One of the things that I hate … is customers who have lost money in an investment scam,” King told The Australian Financial Review Banking Summit on Tuesday. “They’re doing their own financial planning through Google, Facebook and Twitter, and they’re getting access to fake investment prospectuses.”
Westpac chief executive Peter King should brush up on Kenneth Hayne’s final report. David Rowe
He’s not alone. Regulators (and households) around the world are scrambling to police and keep pace with the harms of social media, including investment scams and spruiking.
But King is not some average Joe grumbling at the local P&F meeting about the ills of the internet. He is the boss of Australia’s oldest bank – one that was first to abandon the important but troubled business of financial advice, triggering the broader wealth management exit of the major banks.
In their haste to retreat from the sector after the Hayne royal commission, and avoid the beefed up regulatory compliance regime that followed it, the banks gave little thought to the problems that would create.
For decades, the major banks – along with AMP – dominated the financial planning landscape, employing or authorising the vast majority of licensed advisers. The remaining 16,000 providers – most of them independent or privately owned – are insufficient in number to meet the advice needs of the millions of Baby Boomers set to retire in coming years.
And the mountains of red tape the remaining advisers must comply with – thanks largely, it must be said, to the misdeeds of the bank-owned advice providers – have made their services too expensive for most families to afford even if they wanted to.
Given the royal commission found the banks had mismanaged those businesses, charging dead people for services they obviously did not receive and incentivising the sale of in-house products, many welcomed their retreat, especially the influential and noisy consumer groups.
But it has also opened a financial advice and information gap that increasingly sophisticated criminals and popular influencers have stepped into, exposing consumers to new (and perhaps) greater risks.
For all the flaws of the vertically integrated financial advice model, which prioritised profit over people, the banks have at least compensated customers to the tune of a collective $4.7 billion. Good luck extracting that from faceless and likely offshore scammers!
That is why the Quality of Advice Review, chaired by Allens lawyer Michelle Levy, has concluded that banks must be part of the solution. Her recommendation is that government should reduce the regulatory burden so that bank employees can provide simple forms of advice and information to consumers (including exempting them from the duty to act in clients’ best interests).
The proposal is rightfully controversial, given the past. Choice and fellow consumer groups have vehemently opposed it as a “recipe for another royal commission”.
But the status quo is not sustainable. The nation urgently and palpably needs financial advice, and the dearth of options and models for different demographics across the wealth spectrum is adversely affecting our levels of prosperity and happiness.
It makes sense that banks (along with superannuation funds) play some role, since that is who most consumers will turn to.
At the moment, it is not clear what kind of advice they have the will or ability to provide (if any). Some refer customers to third-party advisers, but the arrangements are opaque. Some provide very limited advice that closely hugs the script written by their lawyers. Even worse, some simply put the customer in front of a “credit adviser” (that is, mortgage broker), meaning they walk in asking for help and walk out with more debt.
Levy is right to asset that the largest financial institutions have a moral responsibility to help address this public policy problem.
But King and his peers should brush up on Hayne’s final report before they think about returning – or moan about the new threats they have helped emerge from the shadows.