A recent study from Metlife has revealed the strength of the client-adviser relationship is a key factor when dealing with the negative fallout from the Royal commission. It also revealed that around 40% of small to medium enterprises (SME’s), and 1 in 5 consumers were actually more likely to visit their advisers as a result of the Commission. In other fallout from the Royal Commission, the big banks future profitability has been questioned.
Strong Relationships Key to Advice
The MetLife Adviser-Client Relationship Report 2018 found 56 per cent of consumers and 37 per cent of SMEs said their relationships with their advisers would go unchanged from the Commission. Matt Lippiatt, MetLife Australia head of retail sales, stated “What’s clear from these numbers is that the Royal Commission has put the spotlight on the need for quality advice and its enduring appeal.”
The four key attributes for advisers to maintain, according to the study were:
60% of respondents rated their advice experience as either 'Excellent' or 'Very Good', while around one in ten rated their experience as either 'Fair' or 'Poor'.
The research found that advisers who genuinely cared about their clients, spoke to them in easy-to-understand language, and maintained honesty and trustworthiness were the most trusted.
“It is apparent that consumers and SMEs want to establish genuine relationships with financial advisers” and "they clearly value the adviser who goes the extra mile to listen to them, understands their needs, and communicate regularly and clearly." Lippiatt said.
These relationship characteristics are backed up when the length of the relationship advisers have with their clients is looked at. Up to 40% of the respondents had been with their advisers for more than 5 years, many clients have established a high level of trust and confidence in their adviser's integrity and abilities.
This would not be anything an experienced adviser does not know already – but for new advisers entering the industry, it shows what is needed to establish ongoing, long term sustainability for their future. It also points to the significant value that the industry will have to recoup in terms of know-how and experience, should the expected exodus of skilled “veteran” advisers take place, as a result of legislative changes and industry re-structuring.
While the study results are positive news for existing advice relationships, the challenge remains for the industry to translate these messages to the vast majority of the population who are yet to engage in financial advice, who are unacquainted with it's benefits.
Big Banks Future Profitability Questioned
In other fallout from the Royal Commission, Reserve Bank assistant governor Michele Bullock has signalled Bank profitability could be "permanently" reduced as a result of the lasting costs from dealing with misbehaviour in the industry. It is also widely predicted the banks may have to deal with more aggressive regulators after the royal commissions conclusion.
Fairfax media has reported the major banks have already set aside at least $1.3 billion to cover the costof a string of scandals for the latest financial year, a figure that includes some compensation payments, fines, and other related costs. The same banks could face another $2 billion in compensation and related remediation costs in 2019.
Bullock mentioned that these figures were "relatively modest" compared with the roughly $30 billion a year the big four banks make in profits, a point that should not be lost on anyone thinking the banks were being unfairly targeted. But Bullock also pointed to potential compensation costs from past behaviour, "ongoing" higher compliance expenses, and the prospect of class actions against them.
"More broadly, there has been very little share price growth over recent years which has had an impact on shareholder returns. And changes to business models to address the risk of future misconduct could more permanently impact banks' financial performance." Ms Bullock said.
"These changes, however, are likely to increase the resilience of the financial sector in the medium term, even if at the expense of lower returns.”