Two of the bank’s top executives will leave the business as a result of the shake-up with consumer bank executive George Frazis leaving to pursue other opportunities and BT CEO Brad Cooper leaving after assisting with the transition. Mr Cooper is also the deputy chairman of lobby group the Financial Services Council.
Westpac will continue to have a presence in wealth management and will retain its investment platform Panorama. Westpac’s top customers will be serviced by its private bank and general advice will be provided by digital banking channels such as robo-advice.
“When you look through the short-term challenges, this is a good business,” Mr Hartzer said. “There are a range of opportunities in wealth, it’s not binary.”
The pivot away from financial advice will cost Westpac between $250 million and $300 million in restructuring costs. The bank says by exiting the “high-cost, loss-making business” it would pocket $280 million in savings by 2020.
Westpac will cease taking on new financial customers immediately and stop servicing existing ones from June 30.
Mr Cooper said the many thousands of customers who Westpac provided advice to in the past would be referred outside the group “in much the same way they would if they needed an accountant or a lawyer”.
The number of employees affected by the decision will be 900 full-time equivalents. Westpac says 90 salaried advisers and 85 support staff would leave to join Viridian for a consideration believed to be less than $50 million.
Viridian is a boutique financial advice business that was formed by ex-Westpac employees with a staff of 130.
As of September 2018, Westpac had 389 salaried advisers and 414 aligned advisers. The number has fallen by one-third in three years and in September 2015 the bank had 568 salaried advisers and 624 aligned advisers.
Westpac will retain its insurance business, which will be rolled into the consumer division to be run by former business banker David Lindberg.
The private wealth, investment and superannuation platforms will be rolled into the business banking division, which will be run by Alastair Welsh in an acting capacity.
The changes position Mr Lindberg as a potential successor for Mr Hartzer alongside the head of Westpac’s institutional bank Lyn Cobley.
Mr Hartzer said the economics of the business had been underpinned by volume and average costs. As the volumes came off and the average cost rose, the only businesses that could make financial advice work were specialists.
“Niche business and boutiques who really understand their position can charge enough and make this work whereas as an average [cost] it doesn’t work.”
Westpac said the bank would support staff not making the move to Viridian and assist them with self-licensing, moving to another licence or another role within the bank where possible.
Mr Hartzer said bank hoped to complete repaying customers of employed advisers for fees-for-no-service by October and would update the market on its progress with aligned advisers in due course.
“They were essentially running their own businesses so there is more to be done to get to the bottom of the files,” Mr Hartzer said.
“We continue to be on the hook for things that happened in the past and obviously Viridian will be responsible for things that happen in the future,” he said.
The bank had previously admitted the poor quality of aligned adviser files meant it did not know how much it needed to repay customers. It has committed to making repayments of $380 million to customers however it said in February this figure was likely to rise.
The big four banks and AMP have repaid or promised to repay $1.15 billion for fees-for-no-service with estimates that this figure will double, triple or more in coming years.
Westpac’s group executive for strategy and services Gary Thursby has been put in charge of remediation and given the new title of chief operating officer as part of the change.
Viridian CEO and co-founder Glenn Calder spent 10 years at Westpac before setting up Viridian four years ago. Viridian has offices in Melbourne, Sydney, Perth, Tasmania and regional Victoria.
Mr Calder said he felt the firm was better placed to succeed in the wealth management space because it wasn’t distracted by unrelated issues.
“I think that some of the focus of the banks in the last few years hasn’t been about investing in the business or forward looking, it has been about remediation,” Mr Calder said.
He said the company would continue to negotiate with a number of remaining Westpac financial advisers who hadn’t elected to come across immediately however he accepted that it may not be the right cultural fit for everyone. Viridian does not pay grand-fathered commissions.
“We are an advice only firm. We are not cross subsidised. We don’t have historical legacy issues,” Mr Calder said.