NAB’s Andrew Thorburn became the latest big bank executive to concede that their move into wealth management was ill-conceived and poorly executed.

Kicking off the Melbourne leg of the final round of hearings at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, counsel assisting Michael Hodge asked NAB’s chief executive whether he considered the shift of the wider banking market into wealth to be a failure.

After pausing to think, Thorburn said: “If you looked at the raw evidence, you’d probably agree that it has been. It didn’t need to be, but it has been.”

Thorburn explained how NAB reasoned at the time of its MLC acquisition, saying that customers wanted the bank to offer a broad range of products. While financial advice traditionally sat “just outside of the banking circle”, people were beginning to see banks offer those services.

“We bought MLC in 2000 – a long time ago,” Thorburn said. “In those 18 years is…I think we made some missteps, which caused us to be in the position now, [where we’re] divesting.”

In early May, former NAB chief customer officer for consumer banking and wealth, Andrew Hagger, announced that the bank would sell the lion’s share of its wealth business. At the time, Hagger told Professional Planner that the divestment of MLC – which had been purchased from Lend Lease in 2000 for $ 4.56 billion – was about the bank becoming “far less complex and far more simple”.

Thorburn was much more candid today about the bank’s decision, saying that, “We thought it would be successful, but that didn’t happen.” While there was more regulation and compliance than the bank anticipated, he admitted that NAB also failed to wield enough control over the advice side of the business.

“We didn’t integrate MLC into the bank, it was like a separate unit,” he said. “We didn’t invest enough in it, to be honest.”

Thorburn said it wasn’t a matter of capability; the bank had “good expertise” with “wealth experts at the top level”, but failed to “integrate and upgrade” advice systems, instead investing in “other areas that took away from MLC”.

Birds of a feather

Last week, Hodge asked Westpac chief executive Brian Hartzer if, from a consumer perspective, he thought the way Australian banks went wealth management had been a success.

“I think at a high level clearly not,” Hartzer replied.

Westpac remains the only big bank to resist retreating from the advice market, anchored by a half billion-dollar investment in its BT Panorama investment platform. Nevertheless, Hartzer acknowledges that the banks have collectively misread the wealth management market.

“I don’t think banks fully thought through how the model needed to evolve to be consistent with being part of a service business that focuses on long-term relationships,” he said.

When asked by Hodge if he thought the banks “assumed a capacity” to provide wealth management products and advice when, in reality, “the expertise of most banks is only in providing compliant deposit accounts and loans”, Hartzer said “that’s one way to look at it”.

“I think banks just underestimated how different the models were and how the models needed to evolve to be consistent with the way banks should run themselves,” he continued.

Earlier last week, Commonwealth Bank chief executive Matt Comyn gave more insight into what went wrong with CBA’s wealth investment, saying that the bank “didn’t appreciate the different obligations we owe to our customers”.

Comyn lamented CBA’s “culture of not learning from issues of misconduct in the past”, and said the bank was in “a period of ongoing remediation without actually fundamentally understanding the root cause”.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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