Why big banks’ private wealth advisers want to break free
By Aleks Vickovich, Australian Financial Review
The prestigious private banks and wealth management firms advising Australia’s richest people are feeling the post-Hayne heat too.
Once upon a time in financial services, getting good advice meant getting it from the big end of town.
Receiving help on your investment portfolio from one of Australia’s big banks, or even better, one of the Wall Street behemoths, was surely smarter and safer than trusting some no-name planner with a suburban storefront.
Or so the thinking went.
But as the Hayne royal commission and string of scandals that preceded it have demonstrated, the idea that bigger is better when it comes to financial advice may be flawed. Indeed, millions of customers may have been much better off had they never sought advice from the big names at all, as a flurry of class-action lawsuits now shows.
As investor trust in establishment financial institutions has waned, financial advisers have moved to meet the shifting demand.
In 2015, advisers employed by or aligned to major financial institutions accounted for 60 per cent of the industry. Today, that number is just 40 per cent and falling fast.
Over the same period, there has been a proliferation of new, small boutiques. The total number of Australian Financial Services Licences handed out by the corporate regulator has surged 55 per cent from 1374 in 2015 to 2137 in 2019.
The resurgence of Australia’s independent financial advice sector not only denotes a big shift in the companies managing the nation’s wealth; it has also had a flow-on effect for many listed companies.
Fund managers Perpetual, Challenger and Pendal have revealed that their financial results took a hit in 2019 from the fragmentation of advisers, who could once be relied on to recommend their products.
Flight to safety
The story of fleeing capital and personnel from Commonwealth Bank, National Australia Bank, ANZ and Westpac in the retail financial advice market – those advising regular investors – is well documented. The banks have made it clear they want to quit this space, to varying extents.
But now there are signs that in the post-Hayne environment, the independence bug is catching on in the wholesale market – the prestigious firms advising Australia’s richest people (or at least those with net assets of more than $2.5 million).
That’s bad news for the banks, who are united in wanting to keep hold of their private wealth arms – seen as a prime distribution vehicle for business loans and other products – when they eventually offload the more problematic and less lucrative retail wealth subsidiaries.
As regular financial advisers were hauled over the coals at the royal commission, private bankers and wealth advisers watched on from their loftier glass perches with mixed emotions.
On the one hand, they experienced relief, as the inquiry kept a steely focus on misconduct at the retail end of the spectrum, where the regulations governing advice are more stringent.
But on the other, those working for the same organisations in a very similar function – albeit with a very different client base and regulatory status – ran the risk of being tainted with the same brush, victims of the reputational damage further downstream.
In recent months, they have acted swiftly to distance themselves from the Hayne pain.
According to data from research house Adviser Ratings, Commonwealth Private currently has 45 financial advisers operating under its licence, down from 62 advisers in September, representing a 27 per cent decline.
NAB’s private wealth subsidiary JBWere has 213 advisers, down from 238 in September – a 10 per cent decline. Macquarie has 144, down from 150. In December 2017, it had 282.
Data is not available for ANZ and Westpac, since their private wealth advisers are employees and not separately licensed by a subsidiary.
But experts suggest that if they’re not already in decline like their competitors, they will be soon.
“Private bankers working for the Australian banks are all reconsidering their options,” Will Davidson, chief executive of ASX-listed wealth platform Powerwrap, tells AFR Weekend. “They want to leave the vertically integrated structure and make their own choices.”
Powerwrap is a challenger to rising platforms Hub24 and Netwealth, and those operated by the big banks, but distinguishes itself by focusing on advisers for high net worth and wholesale clients.
Davidson says that in addition to the exodus under way from the big four-owned private banks, wealth advisers employed by the Australian arms of American investment banking giants are starting to succumb to the thirst for independence.
The masters of the universe in New York are probably watching the post-Hayne disruption in Australia closely, Davidson says, nervous that their hold on some of the country’s most lucrative private wealth accounts could be at risk.
“They get very worried when there are fewer revenue-generating advisers than there are staff; that’s what happened at UBS.”
The UBS reference harks back to the birth of Crestone Wealth Management. A management buyout of UBS Australia’s wealth division in 2015 had Crestone emerge as one of the earlier movers in private wealth’s independent uprising. Today, it has $18 billion in assets under management.
Crestone chief executive and former UBS wealth boss Michael Chisholm now reflects that the task of going independent was “daunting”, but one that has paid off.
“The best thing about starting your own business is starting with the blank sheet of paper,” he says. “That self-autonomy is exciting. It means you can truly tailor your services to your clients.”
The “box-tick” approach to regulatory compliance in a multinational business has resulted in constraints on services that are out of touch with customer expectations, Chisholm says.
Clients, especially in the gold-tinged wholesale bucket, increasingly demand the very best technology and investment options, which big institutions are resistant to – either because of the inherent risks of experimentation or, too often, because they want to see client money invested in their own in-house managed funds and investment products.
Full control over those key service provision decisions, as well as an equity partnership model with a long-term focus, are the new prerequisites for wealth management success, Chisholm says.
That yearning to provide what Crestone calls a “truly excellent wealth management service” has been bubbling away in the private banks over recent years.
As Crestone and its fellow pioneers, Escala Partners (UBS offshoot) and Koda Capital (headed by former JBWere chief Paul Heath) have gained traction, they have inadvertently provided a blueprint for other disgruntled wealth advisers to emulate.
And the floodgates are starting to open.
Siobhan Blewitt is an example of the new breed of high net worth advisers. She launched Stellan Capital in August 2019 with a breakaway pod of fellow former Morgan Stanley private bankers.
“Clients are seeking solutions that they know don’t have a hidden agenda, financial incentives or conflicted remuneration,” she says. “We are seeing a greater emphasis on client-adviser relationships over big brand names.”
Like Chisholm, Blewitt lists autonomy over investment and technology options as chief among the myriad reasons the independent model is superior for clients.
To capitalise on the growing number of private bankers dreaming of freedom, Powerwrap has launched Tickr, an incubator for wannabe wealth boutiques.
Though hesitant to compare Tickr to the troubled WeWork, Davidson concedes the service is similar, providing a “co-working space” on Melbourne’s ritzy Collins Street, alongside licensing, IT and consulting services.
He has recently signed Derek Bennett, a former Westpac Private adviser, who launched his boutique Sempre Investment Managers from Tickr HQ, and has a bunch more in the pipeline.
“We’re only at the beginning,” says Davidson, of the emerging trend of breakaway boutiques in the private wealth market.
“The opportunity is enormous. Now they just need confidence to leave a big global brand.”