Have you tried to understand the financial advice market?
If so, you’ll know it’s confusing.
For instance, the ANZ bank announced last week it is selling its financial advice division for $975m to another financial services firm called IOOF.
Eight years ago, the ANZ CEO Mike Smith was enthusiastic about the opportunities for advice. So enthused he bought out ANZ’s former advice ‘partner’ ING to grow ANZ’s advisory team to about 2,000 professionals.
Announcing last week’s deal, IOOF’s CEO, a former banker – Chris Kelaher – was quoted in the Financial Review saying “…our style is lead by advice”.
I reckon ANZ’s Mike Smith was thinking he was going to ‘lead by advice’ eight years ago too.
Confusing?
Why couldn’t an institution as successful as ANZ make advice work over eight years, but another organisation reckons it can?
A clue might be IOOF’s Chris Kelaher enthusiasm about one aspect of his purchase – namely, a future agreement for the next 20 years that ensures ANZ will distribute IOOF’s newly acquired advice products.
There are a couple of things you should know about advice businesses.
Firstly, these big financial institutions are not and never have been financial advice businesses.
They are distribution businesses.
Don’t get me wrong.
These are big, strong, institutions that are providing solid shareholder returns, serve as part of the backbone of our share market with tremendous talent and experience in financial services.
However, none of these big financial institutions makes a cent selling advice.
As Mr Kelaher alluded, he is excited by the future guaranteed ‘distribution’ arrangement he negotiated.
Understand for all financial institutions; it is all about the distribution of financial products, not financial advice.
The second thing to understand is the difference between financial advice and financial products?
We don’t send our kids to school based on the textbooks or internet articles they use.
We send our kids to school based on the teachers that influence and teach them.
Financial products are like our kid’s textbooks.
While textbooks are vital, growth for our kids comes from the critique, the support, the leadership from their teachers in their classrooms, universities, sporting fields or workplaces.
What our kids get from teachers is similar to financial advice.
While what they get from textbooks and the internet is similar to financial products.
Make sense?
The aggregation occurring among financial services institutions like last week’s between ANZ and IOOF has little to do with financial advice, and everything to do with the distribution of financial products.
I hope the sale turns out to be a good initiative for shareholders on both sides of the deal.
My more significant hope is that more Australians obtain greater financial certainty in their lives by understanding that financial advice is not another financial product.
What do you reckon?
About Jim Stackpool
For nearly 30 years Jim has influenced, coached, and consulted to advisory firms across Australia. As founder of Certainty Advice Group, he leads a like-minded team of professional advisory firms seeking to create greater certainty for their clients. As an author, blogger, columnist, and keynote speaker, Jim is regularly called upon for his professional insights into the advice industry. His latest book Seeking Certainty is available now.