Neale Prior: Letting the big banks loose on Australia’s $3.5 trillion retirement nest egg would be a disaster

It is understandable that the big four advice firms are desperate for new avenues of work after PwC potholed their gold-paved streets of Canberra. But PwC’s rival Ernst & Young appears to have forgotten more than a quarter century of Federal legal failings and downright disasters with an idea for the future of financial advice in Australia. EY Oceania Banking boss Douglas Nixon has called on Australia’s banks to fill our nation’s yawning advice gap. In an article published on the EY website, Nixon makes only a passing reference to the Hayne royal commission before calling on banks to get back into retirement advice using their deep understanding of how Australians spend and how much we need. “The banks’ access to vast amounts of customer data, including on saving and spending habits, offers an ideal data set to build profiles on risk appetite, consumption habits and retirement timelines,” Nixon wrote. “Who else in the economy can see income, expenses and consumption habits for most Australians better than the banking sector?” As we learnt over more than a quarter of a century, deep data and even deeper pockets do not qualify banks to provide financial advice. A fundamental problem with banks is that they are properly set up to maximise shareholder profit. They’re not set up to act in the best interests of their customers, rather they try to maximise the profit and minimise the risk from a limited convergence of interests. The contracts between the bank and its borrowers are built around their interests potentially becoming highly divergent. The interest must be paid and the principal re-paid regardless of whether the borrowing customer can afford to make those payments. If the value of an underlying secured asset falls below the loan value and the customers cannot afford the repayments, the banks can generally use all sorts of legal and accepted means to get back their money. This goes all the way through to sending the customers into bankruptcy or into liquidation. The lines between banks and its lending customers are clearly defined by law. The lines between the rights of banks and their customers become horribly blurred when these profit-driven corporations are also providing financial advice, portfolio management, stockbroking, funds management and super funds. These inherent conflicts of interest led to the ethical, legal and regulatory nightmares we are still trying to address in Australia. The push of banks into advice and Australia’s growing superannuation wealth from the mid-1990s onwards proved to be a financial nightmare for tens of thousands of people. Over and over again, banks showed they would put their pursuit of profits ahead of the interests of their customers. This has been shown in dozens of legal actions over the past decade by the Australian Securities and Investments Commission and in reams of evidence to the Hayne royal commission. Australia’s advice industry is in ruins, thanks in large part to our big four banks and AMP. None of this is addressed by EY, which instead decries “competition and slower loan momentum are impacting growth opportunities in traditional retail banking products”. Nixon suggest the “market opportunity for wealth services in Australia is considerable” and even points to our massive super savings pool that banks spent two decades gnawing at. “Banks are already proactively supporting people to save for a holiday or a house with budgeting and spending tools,” he wrote. “Wouldn’t it also make sense for them to help Australians plan, save and invest for retirement?” Thankfully, many have sold their financial advice and funds management businesses. It would not make the least bit of sense to repeat the disasters created by banks interfering at every level of Australians planning, saving and investing for our retirement. Leave investment advice to those without inherent conflicts of interest. Australia’s problems are best solved without banks putting their profit-chasing mitts back into advice and investment management. They should focus on taking deposits and efficiently lending out money. Neale Prior has a Master of Financial Planning gathering dust in his bottom drawer, funded by bank finance.