The royal commission into Australia’s financial services sector continues to reveal how customers’ lives have been ruined by financial advice at the big banks, but those in the finance space are predicting the investigation will also change the game for smaller operators and independent financial advisers.
This week’s hearings into the nation’s banking sector uncovered shocking tales of customers being charges by AMP for financial advice they never actually saw, and customers losing their family home after taking advice from Westpac.
The inquiry has also revealed cases where customers didn’t fully understand the financial services they were paying for, or weren’t informed about what they were paying for in the first place.
The general mistrust brewing in the Australian community about financial planners at the big banks has the potential to see an influx of financial planners from the big banks into the independent sector, says director of the Independent Financial Advisers Association of Australia, Daniel Brammall.
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Speaking to ABC’s PM program last night, he said “it’s more scary to stay” in the financial services sector now than it has ever been. He says the independent financial advice sector is “bracing” for many advisers from big financial institutions to jump ship and break out on their own.
He told the program financial services professionals think now is the perfect time to strike out on their own as smaller operators because they believe the big banks may never change.
And with the community increasingly sceptical of the advice powers of the big four banks in particular, will customers follow them?
Professor of Finance at the University of Melbourne Kevin Davis says small businesses in the finance space will face a number of burning questions in the fallout of the royal commission.
The first will be whether the entire financial services sector will take a reputational hit that will slow business.
“The question will be whether the public will perceive more trustworthiness in small, individual advisers relative to the big banks,” he tells SmartCompany.
Davis predicts more customers will flow through to smaller firms in future, but this will present a significant challenge: customers will expect genuine, personal advice and the same digital platforms and offers that the big banks currently provide.
“The ones [providers] that they are currently with have a whole range of products and things,” he says.
Meanwhile, a flow of big bank accountants and advisers into the independent space could also mean increased competition for SMEs, Davis says.
“It changes the nature of the competition, moreseo than anything else,” he adds.
Smaller firms have a first-movers advantage at this point, because many of them are well-versed at providing a holistic service to their clients, beyond just doing an annual review of a their finances, Davis says.
“The small independent local accountant has the advantage in that they know their client and they tend to be doing other things with them [like business planning],” he says.
Financial service providers who can position themselves around offering long-term advice on retirement savings, mortgages and borrowing are well placed into the future, he believes, because these are the key areas of advice that Australians tend to seek out most, says Davis.
The royal commission is showing that both the banks and some customers have pulled their focus away from these key areas.
“When you look at most of it, there’s … a case of greed on both sides of the equation [customers and providers], and some people have clearly been misled,” says Davis.