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Having invested billions of dollars to purchase and build insurance and wealth management divisions in the late 1990s and early 2000s, the major banks now seem to be reversing course. It began with National Australia Bank selling 80 per cent of its life insurance to Nippon Life last year, then Commonwealth Bank’s sale of CommInsure to AIA in September, followed by ANZ’s recent sale of its aligned dealer groups and its OnePath pensions and investments business to IOOF.
One may be forgiven for thinking that this represents the end of bancassurance, but is it?
The term bancassurance is used to describe banks selling non-core financial products to their customer base. The meaning was originally confined to the sale of insurance products but has now been extended to cover the sale of other financial products, such as, investments and financial advice.
Back when the bancassurance model was emerging, product was king. If banks were going to offer insurance and wealth management to their clients, then why not control both the manufacture and distribution of those products?
However, this model of bancassurance didn’t live up to expectations. The cost/benefit ratio in favour of owning wealth and insurance product manufacturers shifted negatively in the years since the GFC. Poor conduct, often related to warped incentive structures, led to increased regulatory scrutiny and oversight, as well as reputational damage.
Ultimately, banks appear to have decided that the vertically integrated bancassurance model is not worth maintaining, considering the higher costs associated with a tightening of the regulatory environment.
Did the bank’s enthusiasm for bancassurance get in the way of them fully considering the customer at the end of the production line? Perhaps, as reconciling clients’ best interests with a limited product line from only one manufacturer is very difficult.
However, there is merit in banks being able to offer their clients a broader array of products and services that help them reach their goals. It allows banks and clients to benefit from a trusted relationship to meet a broader range of financial needs, and particularly suits simple needs where holistic advice from a financial adviser may not be sought.
The fact that banks are now deciding to enter strategic partnerships, represents an evolutionary shift in the bancassurance model from manufacturing to distribution. This should lead to superior outcomes for clients, with the benefits that come with specialisation and best of breed solutions.
The recent ANZ sale of some of its wealth management business to IOOF also included a 20-year strategic alliance with ANZ for IOOF to distribute wealth products through ANZ’s Australian banking network. This arrangement aptly reflects the ‘new generation’ model of bancassurance that is emerging in Australia and overseas.
Ultimate success comes from delivering outcomes to clients that are customised to their needs – irrespective of the manufacturer or origination. IOOF is committed to an open architecture model which gives advisers and clients a genuine choice over what product providers they decide to use. This model fits product and business processes around the client, instead of the opposite approach of trying to fit clients around particular products – leading to advice-led and ClientFirst outcomes.