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Westpac personal advice sale hurts customers, staff but not bottom line, says Morningstar

Emma Rapaport with AAP  |  20 Mar 2019Text size  Decrease  Increase  |  
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Westpac's decision to sell its loss-making personal financial advice business is a blow to customers and employees, but the financial impact on the bank is immaterial, says Morningstar equity analyst David Ellis.

In a research note, Ellis said the bank would face a one-off $250 million-$300 million in one off pretax restructuring costs across two years but says the financial impact on Westpac (ASX: WBC) is negligible, with the restructure removing about $53 million in annual after-tax losses.

Ellis says shareholders will benefit from a simplification of the business, a reduction of operating and compliance risk, and a refocus on profitable wealth businesses where Westpac has natural competitive advantages, such as platforms and insurance.

"Westpac will be exiting the small loss-making financial advice business in attempt to maximise customer and shareholder value," he said.

Earnings-per-share will improve in the 2020 financial year due to the exit from a high cost, loss-making business.

There is no change to Morningstar's $33 fair value estimate. The stock is currently trading 20 per cent below its valuation. At 2.40pm Sydney-time Tuesday, Westpac shares were 6 cents, or 0.23 per cent, lower at $26.46.

Westpac announced on Tuesday that it would sell the financial advice servicing rights to boutique firm, Viridian Advisor, and absorb the private wealth, investments and superannuation capabilities of its BT Financial unit into its business bank.

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Viridian was set up by ex-BT Financial Group advisers in 2015.

The move follows rival ANZ’s sale of its financial planning groups to IOOF and comes after the financial services royal commission heard instances of fees for no service, excessive fees and conflicts of interest in the industry.

“The decision to exit the provision of personal financial advice by financial advisers under our licence has not been taken lightly,” Westpac chief executive Brian Hartzer said.

Commonwealth Bank (ASX: CBA) and NAB (ASX: NAB) are also looking over their options for spinning off wealth businesses.

Viridian will offer employment to as many as 175 salaried advisers and other staff, Westpac said, while advisers under the Securitor and Magnitude brands will have options including self-licensing or moving elsewhere — possibly to Viridian.

About 900 jobs could go, although Westpac will look to redeploy some staff. “We’re realigning our capabilities into the lines of business where it makes most sense based on customer needs,” Hartzer said.

“Most customers don’t differentiate between banking and wealth products; they want help buying their home, paying their bills, planning for retirement, or protecting the things that matter most to them.”

Insurance will be moved into Westpac’s consumer bank, which will be led by current business bank chief executive David Lindberg.

Consumer bank boss George Frazis, the former St George chief executive touted by some as a possible successor to Hartzer, will leave the bank.

Westpac expects to have remediated all customers of salaried advisers in relation to ongoing advice fees by the fourth quarter of 2019, and that it is “continuing to work through its remediation approach” for authorised representatives.

. Emma Rapaport is a reporter for Morningstar Australia.

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