By Leon Gettler >>
THE Royal Commission is opening new markets for small operators moving into wealth management.
Simon Madder, the CEO of Prime Financial, said banks were now getting out of wealth management following the shellacking they got at the Royal Commission, opening the way for small businesses.
And they do it much better than the banks, simply because the banks are too big.
“I think in its simplest form, personalised service,” Mr Madder told Talking Business. “I think there’s a challenge in getting too big and I think if you don’t have the right systems and processes and you’re not close enough to the customer or client, then the theory of what you’re trying to do versus the practice can become quite different.
“I’m not suggesting that banks in the past haven’t put clients first…but perhaps it’s been more product driven than advice or service based.”
Mr Madder said it was understandable why banks had originally moved into wealth management. It was all to sell their clients more services and products, such as insurance.
But banks had moved away from that because it was too difficult.
“You can understand given some of the challenges that have been faced and trying to disentangle the products from the advice piece why the majority of the banks and the investment banks have headed away from it,” Mr Madder said.
He said the findings of the Hayne Commission had shaken the industry.
“In its simplest form, it was shining a light on practices that were fairly questionable.”
The problem with the banks is they had put the product first, ahead of service to the client.
The Royal Commission also raised questions about educational standards and making sure the right people were there giving advice to a client.
“Absolutely it’s impacting, whether it’s a large institution or independent non-bank owned advisory firms,” Mr Madder said.
“Rightly, clients are asking questions and that can only be a good thing, I would have thought.”
Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.
DIGITAL banking platform start-up, Trade Ledger, was named the Ashurst Fintech Start-up of the Year for 2018 after expanding into the UK market and signing up a series of major deals in its first year.
The award goes each year to an Australian financial technology (fintech) start-up ‘that has disrupted the financial services sector with new and innovative services, creating competition and transforming the way we experience financial services’.
Trade Ledger has managed this by being the first corporate lending platform in the world to automate the entire credit assessment process, assess SME supply chain data in real-time, and calculate risk – down to the individual invoice.
This allows banks and other business lenders to tap into the A$90 billion of unmet business credit demand in Australia, and US$2.1 trillion globally.
“As the global economy transitions towards smaller, high-growth businesses – our all-important start-up and innovation ecosystem – business lenders have an obligation to learn how to supply working capital desperately needed by these businesses of the future,” Trade Ledger CEO and co-founder Martin McCann said.
“Australian banks and business lenders also face risks on several fronts. On the one hand, they need to improve both their cost/income ratio and their capital efficiencies within this segment that is traditionally considered as high risk.
“On the other, they are facing increased competition from technology behemoths such as Amazon, Tencent, and eBay, who are all threatening to use their hordes of data to enter financial services.
“The Trade Ledger platform equips these lenders with the same degree of technological proficiency as these massive tech firms, while arming them with the tools needed to meet our booming innovation ecosystem’s need for credit,” Mr McCann said.
This is the third year of the FinTech Awards. The awards owner, Glen Frost, said he was particularly impressed with both the quality and quantity of this year’s applications.
“The 3rd Annual FinTech Awards recognise and reward the innovators and the risk takers,” Mr Frost said. “To be recognised by your peers for your innovation and entrepreneurial spirit will sustain you through the tough times, it will motivate you, and it will show your customers, investors and staff, that you’ve got what it takes.
“I congratulate Martin McCann, and his team at Trade Ledger, on winning the Ashurst FinTech Startup of the Year.”
SUPERANNUATION funds could provide growth capital for businesses large and small, according to a new discussion paper from Industry Super Australia.
Under the right circumstances, superannuation funds could be directed to complement more traditional capital sources such as banks, according to the paper’s author, Industry Super Australia chief economist Stephen Anthony.
Dr Anthony’s paper, Should superannuation funds do more direct lending to business? argues that super funds’ traditionally low asset allocation towards credit to non-financial corporations could be improved via an upgrading of funds internal assessment capacities or via partnerships with banks.
Dr Anthony said currently Australian banks and overseas investors – including pension funds – were the dominant players in lending to domestic non-financial corporations.
Dr Anthony said research showed that today there was significant untapped potential for super funds in this asset class.
“Expanding superannuation funds’ presence in direct lending will help local business grow and deliver economic benefits,” Dr Anthony said. “We are in a better position to commit to long-term loans in Australian dollars – one important factor as businesses doesn’t need to worry about currency risks.
“SMEs need better access to both debt and equity capital and super funds can help. But any arrangements need to offer attractive returns to funds”
Dr Anthony said the recent spate of corporate leaders calling for super funds to participate more in this space needed to package propositions with more of an eye to returns for super fund members and how the superannuation system works.
“Businesses calling for more super fund participation in direct lending should recognise that funds’ capacity in this area relies on steady and growing inflows from workers’ contributions – facilitated by the existing default superannuation system,” he said. “Business needs to be aware of this and continue to support and enhance the default system that may ultimately deliver the funding they need one day.”
Industry Super Australia is an organisation that provides policy, research and advocacy on behalf of 16 not-for-profit industry super funds, as the custodians of the retirement savings of six million Australians.