If banks provide no advice, what do they provide?

For many years, banks have talked about moving away from transactions and towards advice. The branch is for advice. We will become trusted advisors. We see the value-add of banking is the information we can analyse around your data to offer advice.

Complete rubbish.

I’m sorry, but I’ve towed that line for a long time along with so many others, but I don’t believe it will work in today’s toxic banking culture as evidenced by the Australian banks. Following in the wake of the Royal Commission which found banks charging fees for no service and even premiums to dead people, the Aussie banks are restructuring and the theme is generally to dump any advisory roles.

Ban on grandfathered commissions in advice shake-up

A ban on “grandfathered” commissions for financial advice, tighter curbs on fees charged by advisers and a new disciplinary regime for the sector, could follow the landmark royal commission into financial services. In his recommendations, Commissioner Kenneth Hayne said he had given authorities information about un-named financial institutions that may have committed criminal offences for “fees for no service” scandal – charging clients without providing any financial advice.

'Writing has been on the wall': Westpac quits financial advice

Westpac Banking Corp will jettison its loss-making financial advice business in a restructure that will result in 900 job losses and the departure of two of its most senior executives.

NAB to offload wealth business MLC as profit slips

National Australia Bank chief executive Andrew Thorburn concedes owning a financial advice and asset management businesses is exposing the bank to excessive "complexity", which is damaging the experience of its customers, and hiking costs.

CBA puts wealth, mortgage broking spin-off on backburner

The Commonwealth Bank has indefinitely put on hold a plan to float its wealth management, mortgage broking, and financial planning businesses, as it focuses on compensating clients and responding to the royal commission … [but] said it was still committed to "ultimately" exiting its wealth management and mortgage broking businesses.

ANZ Bank offloads super, planning businesses to IOOF for $975m (temporarily on hold as IOOF faces regulatory action)

ANZ Bank has joined rivals in retreating from wealth management, selling off superannuation and financial planning businesses for $975 million … the banking giant is selling the wealth management businesses to IOOF Holdings, in a move that will narrow its focus onto traditional retail, business and institutional banking.

You may say that this is unique to the Aussie markets, but it’s not. It’s endemic in the banking culture built over the past half century as retailers became leaders of retail banks and shareholder return became the ultimate goal of retail bank performance. It led to a toxic banking culture in retail banking whilst investment banking became a toxic culture of interest rate rigging and bonus parties.

In fact, the whole banking culture became toxic. We went through a whole load of soul searching about this after the banking crisis hit in 2008 and people like Lord Adair Turner, the former head of the UK banking regulator, called a lot of banking ‘socially useless’.

In the UK, we had PPI mis-selling, which has cost billions in fines, whilst the USA had banks like Wells Fargo opening fake accounts*.

All of this was about feeding the results by setting wildly unrealistic sales goals that forced staff to pump customers with products they either did not need or, in many cases, were not even aware they had signed up for as staff faked their signatures.

Wells Fargo became a lightning rod for criticism when in September 2016 it admitted that workers opened millions of fake bank and credit card accounts to meet wildly unrealistic sales goals.

In fact, mis-selling is one of the top 10 operational risks for banks, and remains a firm issue:

Firms have shelled out a scarcely credible $607 billion in fines for conduct-related misdemeanours since 2010, the bulk of them related to fines and redress over mis-selling claims. 2011 and 2012 saw the heaviest losses, with the bulk of the fines for residential mortgage to payment protection insurance (PPI) mis-selling concentrated here.

What has really happened here is that retail banks shifted fundamentally from being a local community service focused upon helping people to manage their money safely as an advisor; to a credit card, mortgage and loans pushing firm, focused upon pushing people into debt to get the maximum returns on their interest on credit.

That’s the issue that is being focused upon by regulators and the change aimed to sweep through the industry … but is it too late? Can banks really turn around and say trust me as an advisor when, for the past half century, they’ve tilted to the opposite don’t trust me, I’m just a sales machine.

That’s why the Aussie banks are getting rid of all advisory services … but then, what do they become? If you don’t offer advice, what is a bank for? If you don’t offer advice, why do you have branches? If you don’t offer advice …

… then the bank becomes fairly redundant in my view. A bank without advisory services is a pure store of value and transaction machine. The transactions can be done by anyone these days – just look at the Apple Card – and the store of value can be any regulated service from exchanges to challengers to start-ups.

Hmmm … methinks there is far more at stake here than just being told by the regulator that giving people sales incentives, commissions and bonuses for sales of banking products is no longer tenable. Methinks that banks are fundamentally seeing their foundations eroded through toxic bad practices, poor leadership, digital technology changes, fierce new competition and regulatory encouragement for change.

What tough times we live in (if you’re a bank).