E&R says open plans see banks help themselves
The big banks involved in financial advice have been warned on vertical integration.
Ernst & Young’s latest Banking Agenda report says banks need to appropriately align product manufacturing, advice and distribution activities, to minimise the chance of harming consumer confidence.
The report says better alignment is not only about complying with advice and product suitability reform recommendations, but is necessary for the industry to demonstrate it can self-regulate.
This, the analysts say, will help the big banks avoid the reputational and financial impacts of remediation and regulator intervention.
Ernst & Young says that while vertical integration can be problematic, it is here to stay in the local wealth management industry.
But “the conduct and culture of major financial institutions has remained in the spotlight with recent Parliamentary Joint Committee and Senate Inquiries into financial advice, ASIC performance and professional, ethical and education standards,” the report said.
Although the industry has been responsive to the reviews with transformational effort, a new level of scrutiny of wealth management will continue.
“In this context, managing conflicts in vertically integrated operations, professional standards and disclosure adequacy will be continuing areas of focus,” the report said.
“With ASIC due to issue another report in the second half of 2015 and pending Government responses to the FSI and current Senate Inquiries, further reforms are expected.”
The analysts believe structural separation of vertically integrated business models remains unlikely.
“Such models are used extensively in the Australian financial services market by both aligned and independent banking, asset manager, superannuation, insurance, platform, research house, asset consultant and advice providers,” they said.
“Despite this, we believe ongoing interrogation of business model integrity, more transparent disclosure of key business practices and 'restricted labelling' arrangements are distinct possibilities.”