Westpac banking Corp [ASX:WBC] will ditch its personal financial advice division after being slapped with further regulations and legislation, which has rendered the service unprofitable across all four banks.
Westpac was the last of the major banks to close its financial advice sector.
At the time of writing, Westpac’s share price is trading at $26.20, down 0.53%.
Westpac’s restructure moves into business and consumer divisions
As part of Westpac’s restructure, the bank is ridding itself of salaried and aligned advisers. Consumer Bank Chief George Frazis and BT Chief Brad Cooper will both leave the company under the changes.
Meanwhile, its residual wealth and insurance divisions will be carried over to Westpac’s business and consumer sectors.
The reshuffle will also incur a one-off cost between $250 million and $300 million. However, shareholders will be pleased to know that Westpac expects gains of $20 million a year in productivity after the cuts.
Westpac’s Brain Hartzer was reluctant at first to get rid of the financial advice business, but remediation costs rising from the royal commission, as well as the recommendations by the commission, indicated higher costs and liabilities in future.
He ultimately decided that the advice division which had a $53 million loss (excluding remediation costs) would continue to lose more in the future.
Now the company is moving to a referral model for financial advice, using panel advisers and adviser firms, instead of the 803 salaried and aligned advisers now on its book, as reported by the Sydney Morning Herald.
Westpac is the only bank to maintain a wealth managing function within its business, which isn’t surprising when you consider its successful wholesale of Panorama platform, housing $16 billion of funds under management, according to the Sydney Morning Herald.
Westpac’s share price forecast news
Westpac’s share price has been shaky over the last five years, and after being raked over the coals in the royal banking commission, things aren’t looking great for Westpac.
That said, Westpac’s strategy is starting to reflect the changing landscape every other major bank has had to adapt to.
Non-bank wealth managers, including those operating within banks, will have to, at some point, abandon, sell or rework to do the same as Westpac has.
How this will impact the stock market is hard to say, but one thing to consider is that if Westpac has started this process now, the string of restructuring later down the track from other wealth managers might impact Westpac’s share price positively in the long run.
For Money Morning
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