During his appearance at the royal commission on Thursday (22 November), Westpac CEO Brian Hartzer agreed with counsel assisting Michael Hodge’s assessment of the financial advice industry – that the FOFA reforms have forced advisers to transition from a commission-earning “distribution channel” for products into professionals who offer advice.
Mr Hodge asked the CEO what role advisers have within a bank like Westpac if they are now going to be truly professionalised.
“That is an issue of ongoing discussion,” Mr Hartzer replied.
“As we have seen, the systems that are required to demonstrate compliance and record keeping and the controls around that are substantial, and I would make the point that an institution like Westpac has the resources to invest in those systems and to sort things out when they do go wrong.
“By not being in institutions and being out on their own means you either have to have large, independent companies or you have a fragmentation of the industry. And in that case, you don’t necessarily have the resources to invest in the controls to give the clients the comfort level that ultimately, we all seek.”
Mr Hodge said he had seen Mr Hartzer give this explanation before and suggested that in the past, nobody had been paying the true cost of high-quality compliant advice.
“Isn’t one possibility that it is recognised that for most Australians, they don’t need an ongoing advice relationship with a financial adviser?” Mr Hodge asked.
Mr Hartzer replied: “Possibly. I’m not sure most Australians have one. But there is a reasonable proportion of Australians that would see value in that.”
Earlier in his testimony, the Westpac boss was asked by Mr Hodge why clients shouldn’t have to make ‘opt-in’ agreements with advisers every year, rather than every two years as is currently the case. Particularly as the major bank is embroiled in fees for no service scandals.
Mr Hartzer said a more frequent opt-in process would be an administrative burden and be of little value.
“Some of these clients are having ongoing conversations with their advisers on a regular basis anyway. So they would regard it as an unnecessary regulatory burden,” he said. “If you spend time doing that you’re not spending time doing something else.
“Some clients want an active set of meetings frequently. Some clients view it as a bit of a retainer relationship where they can ring up and bounce things off their adviser when they want to. Sometimes they are quite happy not to do that for quite a long time but still like to know that the adviser is there. I know people like that.”
Mr Hodge then asked: “You know people who what?”
“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.
Mr 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.
Perhaps I say none of us would be in this eton mess as a result of banks trying to play financial planning as a revenue raising exercise, best interest?
Hodge has no idea. It is not juts wealthy clients who are prepared to pay an ongoing service fee to be able to contact their adviser at any time. My clients who I find most appreciate this ongoing fee for service relationship are those who would have to deal directly with Centrelink (who are truly incompetent) if we were not doing this as part of our service arrangement.
This is where this whole concept of fee for service has got lost by the RC and James Shipton. It does not solely relate to the annual review process. It is an ongoing service process covering many services not just one.
It appears to me that the lawyers at the RC and the new ASIC chairman have no understanding about the true relationship between the adviser and their clients. I have clients who have been with me for over 25 years and are more than happy to make sure I am appropriately remunerated to remain profitable and in business to continue to assist them with both their financial and other lifestyle plans.
Its OK, Westpac has the resources to send its star pupils to an all expense paid conference at Port Douglas. No resources to help clients, plenty to reward the behaviour of the “guns”.
Part of the issue here is that these guys have MBAs but lack the on-the-ground technical knowledge. So, they are the proverbial ham-in-the-sandwich (between ASIC on one side, and advisers on the other). They are too busy having meeting-after-meeting trying to get their heads around what’s needed and then issuing instructions and procedures that only make half-sense, thus causing frustration and wasted time and resources all round.
Actually, Brian Hartzer has a Bachelor of Arts with a major in European History.
Brian, you are a billion dollar institution and have the resources, but did you comply with the law with all those resources at hand?
Hey Brian. We’re a self licenced, boutique advice business, spending 3% of our revenue on technology. We have real time reporting on compliance, business activity, practice management, business revenue and clients’ financial situations. When I show our system to BDMs they salivate and WISH their employers would better invest in technology. The cloud has equalised access to technology solutions. And small businesses can move faster. The banks are now WAY behind and it will take them years to catch up.
Hi Stephen,
Would you mind replying with the technology that you use? What software do you use for what? I am a young Adviser starting out and I would love to hear how you are doing things. Thank you!
Andrew Smith is (supposedly) a rogue at Westpac. But ASIC finds every one of his 15 sample Dover SOAs satisfies the best interests duty. Every one. While ASIC research shows only 1 in 5 bank AFSLs satisfy the best interests duty.
So what nonsense.
But it is what ASIC will work on: the RC will leave banks stronger than ever.
of course they will because the RC will copy and paste Choice’s submission
bring back dova
hi dova mate, why don’t you do the CFP it will make you very employable
yes, it’s a good plan. will take you all the way from RG146 to Adip FP status keep going matey, then you do gdip fp with two exemptions
Seriously it’s not rocket science is it. Pretty simple if they don’t have the funds/money to cover the cost of controlling and regulating the behaviour of the Banks then the Banks should cover the cost out of thier record profits. If the banks were doing the right thing they wouldn’t need regulation but there not so they should fund it.
It is a moot point by Mr Hodge, as most Australians *don’t* have a financial adviser.
Of course Mr Hodge’s comment also insinuates that most Australians will be just fine living off the Age Pension and their accumulated super, with no planning ahead whatsoever.
Because the world is this very stable place, where governments and employers keep their promises, investment markets grow forever with no fluctuations, and all families are happy too.
The ignorance in Mr Hodge’s comment is astounding. What fantasy is he living in?
Institutionally aligned advice groups have a better chance of affording the systems required to keep records (hahahaha) and run a compliant shop (hahahahahahahaha), according to the big four boss (of course he thinks that, what a joke).
IFAs can’t be compliant leave it to the big institutions hahahahahahah no stop it that is hilarious!
Most Australians don’t need an advice relationship, yes let them pay a lawyer 30% of the insurance claim to get the paperwork through hahahahahah stop it you’re killing me. THIS STUFF IS JUST A JOKE WHERE ARE FPA/AFA? That’s right taking care of your interest first while the industry is being slaughtered.
You beauty. No ongoing fees ….no ongoing risk. Just deliver the advice and walk away. Don’t worry about implementation. Just advice and laugh as client get screwed as they implement the advice for themselves. I know they can ask their bank or AMP for help, that won’t end in tears will it? After all, they are reliable and trustworthy experts …..as the Royal Commission has proven.
By the way, I wonder if all the textbooks and ethical obligations are consistent with this thought.
As for fees for no service, just look up legal retainer….Payment in ADVANCE of the service.
So I guess this arrogant Hodge has, through his time in the RC, begun to think he is a planner and can do all this himself. Just shows the thought process of a lawyer right there…
“Most Australians, they don’t need an ongoing advice relationship with a financial adviser”, just like most Australians don’t need an ongoing relationship with their accountant, doctor, dentist or anybody for that matter. Wouldn’t it be nice if they actually spoke to some good advisers to explain to these imbecilic councillors assisting that we do help people and that we’re not just a bunch of grey haired salesmen earning a commission.
At the time when Mr Hartzer is making these statements ,his own clients pay a 10-20% premium on life insurance, different to what BT offer non aligned advisers…The Banks own clients pay more!!! Smoke and mirrors Brian !!! Skulduggery ….easy to make money when you bend the rules and call it cover for preexisting conditions…what about all the standard lives brian ?wheres your duty of care Brian!!!
IFAs don’t have resources for compliance? Well, if the banks do they haven’t used their resources very well have they? Nothing has changed in the industry (other than more compliance) in over a decade.
Ah Hartzer, the banks may have the resources over the IFA’s, but the IFA’s have the ethics.
These are stupid questions to be asking the CEO of a bank. Why aren’t the Royal Commission talking to actual advisers, with experience. In terms of IFA’s not have the right systems to be compliant, this is laughable. We own our own businesses, it is our livelihood, so we are more passionate about compliance than anyone. How can you compare this to a bank employee? It’s just a job. They clock off at 5pm and couldn’t care less about protecting the bank or going the extra mile to ensure all the i’s are dotted and t’s are crossed.
true, the biggest risk to an ethical long serving IFA is now their dealer group and others. we don’t want to be named and shamed or lose our livelihood, i’d rather pass up on a few clients here and there if they are too risky
Exactly right. And one License who was doing their darnedest to run the best model was Dover , and so they had to be rubbed out before all the best bank advisers left the banks to join . There is a dark agenda behind a lot of what is going on,
Perhaps the best model isn’t a “dealer group” at all?
Because the people asking the questions don’t care and have already formed and opinion. Unfortunate and as incorrect as that opinion is.
Probably the most highly paid oxygen thief in the banking sector. Have been watching this circus and I have no doubt that it’s being run by clowns. Research over many years has shown that advisers add about 2% value to client portfolios each year if they follow a plan. The overpaid lawyer asking the questions also has no idea.
Would you care to share the link or where this research is?
Vanguard oct 2018. There has been quite a lot of research over the years about advisers value add . Google it.
that’s just the % what about peace of mind and assurance we provide on many non financial factors. many of my clients call me to ask about many other things of importance to them, not just financial matters. they use me as a sounding board
we do lots of work for free, if i billed for every hour my fees would be double
not a single one complains, when i send them an opt in notice, the vast majority just sign and return immediately
i’m happy to do a masters degree and sit the exam so i don’t have to do this time wasting exercise. my clients know what they are being charged each year, i highlight (literally) the fees and charges. they are happy i am profit making and i drive a very expensive car and am successful as i will then be around for many many years to serve them.
in fact, many hope my children will follow me into practice so they have a second generation (their children) who can be looked after
Dalbar. Please google it.
Isn’t one possibility that it is recognised that for most Australians, they don’t need an ongoing advice relationship with a financial adviser?
Glad to see the Royal Commission keeping an open mind and not working towards a particular agenda.
clealry bank ceos want independents to fail. the banks can cross subsidise products where small independent operators cannot. i would be sickened to see if westpac is still allowed to play in financial planning. there might be some relatoinship somewhere with westpac executives and asic because they seem to have come out of all this mess unscathed even though they executives here are just as criminally culpable as the rest of the big 4.might as well just shut down the industry and give control to the industry funds backed by the cfmeu thugs.
the law was made unnecessarily complex because of the banks lobbying just so smaller players would have a difficult time satisfying them and only large institutions could continue operating as they have the capacity to do so excluding all others. we’ve seen the outcome of that haven’t we. just to remove any doubt, it’s been disastrous.
the law requires simplification, otherwise how are other professionals: doctors, dentists, lawyers, barristers able to practice independently ? they also have a complex field of endeavor like we do yet they can continue to practice unfettered
“Isn’t one possibility that it is recognised that for most Australians, they don’t need an ongoing advice relationship with a financial adviser?” Mr Hodge asked.
Talk about leading with his true views on things…. lets not review out investments and have another GFC the exact reason why mysuper was introduced in the first place because most people don’t see a financial planner who would have moved people to less conservative investments but most were invested to aggressively In “Balanced funds” which I mean growth hello MTAA
this is no different to lawyers charging for conveyancing which can be done yourself but you get a lawyer to make sure everything is ok. This is the same in financial planning we charge for our time but at least have best interest duties for our clients and are not doing it off a law template. copy paste and change the property then giving their real-estate mates a kick back on the fees …
So all your SoAs are written without a template?
Geratd. I can tell you now we have to pay a parraplanner to generate a new soa every time we complete business to be compliant because we don’t have one client with the same advice or goals which in turn have projections different super funds/ insurance companies structures etc etc and you simple cannot cut and paste. You might be thinking of product or certain strategy floggers not real financial planning.
Yes Mr Hartzer the Banks have done a wonderful job of running compliant Financial Advice businesses.
WTF is this guy talking about ?
And they honestly think people believe them ?
[b]Ban Vertical Integration – the only way forward !!!!!!!!!!![/b]
And get the criminal banks out of Financial Advice which for them purely = Distribution.
Absolutely wrong Brian – most smaller licensees have the right culture to remain compliant. Believe me banks don’t – ask your BT boss Mr Cooper what his priority is and its always product and that the culture
So Hodge has a view that most Australians do not need an ongoing advice relationship. Is this a royal commission or an opportunity for Hodge to push his personal views ? On what basis does Hodge have the right for speaking on behalf of all Australians ?
This is the whole problem with Opt-In. Lawyers and policy makers think it’s a simple matter of incorporating it into the regular conversations advisers are having anyway.
But in the hands of regulatory bureaucrats Opt-In becomes a complex administrative process that doesn’t allow for clients being too busy or distracted or forgetful to sign and return forms within the narrow window allowed.
Also Hodge showed his ignorance by incorrectly referring to the current process as a two year contract term. It’s not. Clients can cancel adviser fees at any time. Clients have full visibility of those adviser fees, which are regularly disclosed to them via disclosure statements. Opt-In is an additional step that clients have to take to avoid the government forcibly cancelling their advice service without their consent. It is ultimately even more onerous and harmful to consumers than it is to advisers.
Hodge must have heard about the old Life insurance and personal super products ! Shows how little Hodge knows … scary
Why is the CEO of Westpac Bank even being asked these questions about client’s ongoing relationship with advisers. He is neither a Financial Planner nor a client of a Financial Planner. I suggest he stick to bouncing cheques and giving out Personal loans.
Furthermore being a former adviser licenced under a Westpac Brand with 10-20 auditors across Australia I would attest their support was the worst.
OMG
So let me get this right Mr Hartzer is saying he doubts IFAs have the resources for compliance yet at the same time they are pushing us at securitor and other associated groups to go down the self licenced route knowing full well that the compliance wont be as robust and all the fee for no service risk is being transferred to the self licenced practice who will then need to pay all the refunds
Incredible just incredible
I wonder where this is heading?
“Isn’t one possibility that it is recognised that for most Australians, they don’t need an ongoing advice relationship with a financial adviser?” Mr Hodge asked.
There is a huge problem for the industry right there. We have a person running the Royal Commission who does not believe in advice. This is a one-sided RC which will end up in disaster if the AFA/FPA do not call this crap out, just like the MFAA came out swinging for their brokers this week. Wake up associations!!!
““Isn’t one possibility that it is recognised that for most Australians, they don’t need an ongoing advice relationship with a financial adviser?” Mr Hodge asked.”
We know where this is heading, ban ongoing fees from Super. Fee for service only, transactional etc…
This will kill any FP businesses that left standing after the banning of commissions, trail commissions etc… and the compliance burden.
What an exciting industry to be in LOL
So true, thats exactly what the next move will be that they try.
100%. The goal of all of this for the banks and RC is FFS with $0 allowed from super. You want ongoing service, you need to pay for it from a bank account with an invoice. I’m always interested to hear when a client calls me to say that a fund has called them to ensure they’re receiving advice. Nothing will give funds/banks more joy than to get rid of advisers once they’ve received rollovers in to their funds.
There are practices already operating this way. Its less lucrative, but its possible.
Yet more proof these muppets running Banks live in an alternative reality. I lose 100% of my livelihood with non-compliance. The banks… well we’ve seen their work and bonuses. Who has more skin in the game here?