Banks ramp up competition

Financial planners are likely to see an increase in competition from banks, according to a banking expert.

Thursday, February 28th 2013, 6:00AM

by Niko Kloeten

But banks are unlikely to have the skilled advisers necessary.

KPMG partner John Kensington, an author of the newly-released Financial Institutions Performance Survey (FIPS), said that with little prospect of big increases in profitability from their core activities, banks were expanding into non-traditional services.

“Banks make the majority of their money from net interest income, which you can increase by either pushing margins up or having growth [in home loans]. When you don’t have either of those there is a need to look elsewhere,” he said.

These other services include personal loans, insurance and fund management as well as financial planning. But he said it was not always smooth sailing for banks in those areas..

Kensington said it could be difficult for banks to compete with specialist fund managers or insurers, so they had the choice of either going head-to-head or working with them, as BNZ does by using Russell Investments to manage its KiwiSaver scheme.

Kensington said that in the area of financial planning the biggest constraint banks faced was a lack of suitably qualified and skilled financial advisers.

“The banks have a limited number of these people and they are spread across a range of industries at the moment,” he said.

“A lot of advisers are at or near retirement age with very good client bases. When they retire and look to sell their businesses, maybe that’s the point where banks get some of their customers back.”

Kensington said the New Zealand banks had also been struggling to get their private banking operations going.

“Every New Zealander with a reasonable salary thinks they should be in private banking but it’s really only the top 5-10% of people who can use it,” he said.

“There aren’t the people or the expertise to do private banking… I don’t think customers know what they want either.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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