It’s getting awfully lonely for David Murray, the last dinosaur in the swamp of vertical integration. This morning his former fiefdom, the Commonwealth Bank — where he started the big bank move into wealth management and financial advice two decades ago with the takeover of Colonial Mutual — announced it was spinning off its wealth management and mortgage broking businesses.
The new, separately listed CFS Group will consist of Colonial First State, Colonial First State Global Asset Management (with a reported $219 billion under management), financial advisors Count Financial and Financial Wisdom, and Aussie Home Loans businesses. John Mulcahy, a former senior bank executive under David Murray (and a former CEO of Suncorp) will chair CFS Group and a search has started for a chief executive.
Back in April, CBA said it was looking to float off Colonial First State Global Asset Management. Analysts reckoned it could raise $4 billion and free up capital for the bank to either use in its own operations or return to shareholders. That’s been nixed in favour of a more comprehensive demerger that will mean CBA will, for the first time since the Murray years, return to being a “simpler, better bank.”
The other majors are in the process of, or have already, bailed out of some or all of their vertically integrated operations, bringing the era of vertical integration to an effective close. Murray strongly defended vertical integration as head of the Financial System Inquiry for the Abbott government, and continues to be wedded to the idea that the structural flaws of the model — the incentives for planners to provide poor advice to customers, and the reputational damage that constantly accrues to banks — can be regulated away. The CBA board, led by Catherine Livingstone and new CEO, Matt Comyn evidently disagree, with Comyn saying
Today’s announcement is another step in our stated priority to become a simpler, better bank and has followed a thorough review of the group’s businesses and its optimal organisational structure to drive growth and shareholder value for all businesses. It also responds to continuing shifts in the external environment and community expectations, and addresses the concerns regarding banks owning wealth management businesses.
However, the CBA is keeping its salaried financial advice business, Commonwealth Financial Planning — the subject of so many complaints back in the 2000s and early part of this decade — which will be rolled into its consumer financial services business within its retail banking services division. Being salaried and not rewarded with commissions is an easier sell for the CBA, but the structure of the salary packages and the incentives they are creating for advisers, will have to be made transparent.
Apart from the repudiation of his industry legacy, Murray also has the headache that CFS Group will be a major competitor to AMP, where Murray is about to take up the chairmanship — and one without the massive reputational damage and regulatory problems that AMP faces. That includes the potential for criminal charges.
We’ve come a long way in just under five years, when the election of the Liberals seemed to pave the way for ongoing government safeguarding of the vertically integrated model — and its associated damage to so many consumers — from any regulatory or reform threat.