NB, big four: British banks' cross-selling days are over
Britain's banking industry faces a £13 billion ($19.9 billion) bill for the past mis-selling of payment protection insurance. More than a decade ago, British banks and credit card issuers thought they could make a lot of money cross-selling insurance to people taking out mortgages and credit cards.
However, since a review of the sector, rules have been tightened and backdated, and consumer advocacy groups have been encouraging consumers to seek compensation if they believe they had had no legitimate need for the product or had been wrongly excluded from making a claim. Not surprisingly, in a tough economic climate, thousands believe they have been mistreated. And, just as in Australia, a complaint to the ombudsman commonly results in a finding in the consumer's favour.
The amount so far set aside by 14 British banks, building societies and credit card companies stands at just short of £13 billion, making it the biggest mis-selling scandal in Britain ever.
The biggest bill is being shouldered by the Lloyds banking group, at just under £5.3 billion. National Australia Bank's besieged Yorkshire and Clydesdale subsidiaries have reportedly booked more than £100 million in provisions against the mis-selling of these products. A Melbourne-based spokeswoman was unable to comment.
Meanwhile another mis-selling problem is brewing in Britain over the sale of interest rate swaps to small business customers.
Such cross-sell nightmares are encouraging British banks to return to what they are supposedly good at: the extension of loans and the management of deposits.
It's a very different story back in Australia, where diversification in an environment of subdued credit growth is all the go.
For the most part, the banks have traditionally shied away from general insurance and investment banking.
But it's a different story in wealth management, where our major banks are gearing up for a fight to the death, having spent billions buying up the sector over the past decade or so.
The idea is that as net interest margins continue to fall they should look to build fee income from growing superannuation and discretionary investment balances.
ANZ recently launched its Smart Choice retail superannuation product, seemingly at a significantly lower margin than the current offering of competitors AMP and Westpac's BT.
ANZ says it wants its wealth management and private banking operations to make a material contribution to the total profit and market value of the bank from the less than 7 per cent it contributes at present.
It also wants to double the number of its salaried financial planners from 300 to 600 over the next two years.
"Our focus is to increase and scale our salaried planners so we can control the end-to-end consumer experience and better serve ANZ's customer base," said Joyce Phillips, ANZ's new head of global wealth and private banking division.
The bank has admitted that so far it had done a poor job of cross-selling wealth products to its 3.7 million customers.
The heads of the bigger independent wealth managers have always insisted that banks have never represented much competition.
One reason is that banks have typically targeted a mass affluent segment that is of little interest to independent players targeting the high net worth segment.
But there are other reasons. As a former chief executive of AXA Asia Pacific used to say: "People hate banks". In other words, consumers deal with banks because they have to, not because they want to. Traditionally customers have preferred to show their bank as little of their financial affairs as possible.
To make matters worse, big banks have never been able to retain wealth management staff or develop the sales culture required to sell, for instance, life insurance, which requires a very different culture to what is involved in extending credit.
Return on equity of the major banks from wealth management has nearly always been substandard. For instance, ANZ's is less than 10 per cent. And each has blown millions on failed IT projects.
Despite the impact of the Future of Financial Advice regime, affluent Australian investors will continue to gravitate to independent, specialist wealth managers, especially if these companies can offer some benefits of scale. Quality financial advisers will rarely align themselves with a big bank.
Frequently Asked Questions about this Article…
The article says Britain’s banks, building societies and card issuers have set aside just under £13 billion to cover past PPI mis‑selling — the biggest mis‑selling scandal in Britain. Fourteen firms have booked provisions, with Lloyds banking group bearing the largest share at about £5.3 billion, and National Australia Bank’s Yorkshire and Clydesdale units reportedly provisioning more than £100 million.
According to the article, the mis‑selling review, tightened and backdated rules, and active consumer claims have made cross‑selling non‑bank products much less attractive. Many British banks are retreating to core activities like lending and deposit management rather than aggressively cross‑selling insurance or other products.
Yes. The article highlights a brewing mis‑selling issue in Britain over the sale of interest rate swaps to small business customers — another example of product sales that can expose banks and customers to complaints and compensation claims.
With subdued credit growth and falling net interest margins, Australian banks are diversifying into wealth management to build fee income from superannuation and discretionary investment balances. For everyday investors this means big banks are increasingly offering wealth products, but competition with independent wealth managers is intensifying.
ANZ recently launched a Smart Choice retail super product reportedly at a lower margin than some rivals (for example AMP and Westpac’s BT). ANZ wants its wealth and private banking operations to contribute materially more to profit and market value (they currently contribute less than 7%) and plans to double salaried financial planners from 300 to 600 to improve cross‑selling and client experience.
The article suggests affluent Australian investors tend to prefer independent, specialist wealth managers. Reasons include banks’ weaker sales culture for life insurance and wealth products, staff retention challenges, and the fact many quality advisers rarely align with big banks. Everyday investors should weigh the benefits of scale from big banks against the specialist focus of independents.
Wealth management return on equity for major banks has often been substandard. The article gives ANZ’s wealth ROE as less than 10% and notes banks have spent millions on failed IT projects. Investors should consider whether a bank’s wealth arm has demonstrated profitable, stable returns and the capability to retain skilled advisers.
The article notes consumer advocacy groups encouraged customers to seek compensation and that complaints to the ombudsman commonly result in findings for consumers. Rules around mis‑selling were tightened and backdated, so if you believe you had no legitimate need for a product or were wrongly excluded from a claim, consider lodging a complaint and seeking independent advice about compensation options.
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