The chief executive of a big four bank has admitted that financial advice has become a “service for the wealthy” since the introduction of fees for service.
During the final week of the royal commission, ANZ CEO Shayne Elliott was grilled extensively about the mortgage broking industry. Counsel assisting Rowena Orr asked Mr Elliott repeatedly whether he believed broker remuneration needs to be reformed.
“No system is perfect,” Mr Elliott said. “A fixed-fee is also capable of being misused and also leading to unintended outcomes."
When asked to verify if he meant the fee would be paid by the lender or the customer, Mr Elliott explained that fees paid by customers would create inequality.
“The difficulty with the fixed fee, if I may, is it, essentially, is of major advantage to people who can afford and have the financial position to undertake large mortgages,” the CEO said.
“It potentially is a burden to those who have small... So a subsidy would be being paid by those least able to afford it, and it runs the risk of making broking a privilege for the wealthy.”
Ms Orr suggested that the fee could be capitalised into the loan and asked Mr Elliott if this would address some of the concerns he had.
“Not really,” he replied. “We can move [the fee] further away, so it’s not immediately obvious to you, but somebody is paying for that customer.
“So, again, if it’s paid by the borrower, the incentive there will be that people seeking smaller loans, it would be uneconomic to go to a broker. So a broker becomes a service for the wealthy, much like financial planning has become.”
Mr Elliott’s comments come after Westpac CEO Brian Hartzer defended ongoing advice fees, telling the royal commission that he knows wealthy people who keep financial advisers on a retainer.
“I know people who pay for an advice relationship and are quite happy about the fact that it’s at their discretion to ring up the adviser and talk to them,” Mr Hartzer clarified.
Counsel assisting Michael Hodge said he was not being facetious when he asked if Mr Hartzer was talking about “very wealthy people”.
“Relatively speaking that would be true, yes,” the Westpac CEO said.
Mr Hodge suggested to Mr Hartzer that this was an important point, because the subset of clients that need to have an ongoing advice relationship and are in a position where they are “happy to just leave somebody to monitor their no doubt very significant investments” are going to be very wealthy clients.
“It depends on your definition. But I would say broadly, yes,” Mr Hartzer agreed.
Several firms have been impacted by the corporate regulator’s action.
Super funds must now have a retirement income strategy in place.
Vanguard has called for a complete overhaul of the advice industry.
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