The VIP treatment

Published in the Herald Sun, November 2014 by Karina Barrymore

Bank investors are feasting while the customers fight over the crumbs.

Australian shareholders love their banks

Bank stocks are among the most widely held investment in the country. Their steady dividend payouts and share price rises provide a constant lure for investors including international buyers.

But what is it about Aussie banks that make them a hit with their investors but not with their customers?

Banks provide a mass consumer product, similar to supermarkets, yet unlike the retail giants, the banks can't seem to get the balance right.

"When it comes to the banks you need to separate being a client of a bank and an investor in a bank, as the goals of each are the polar opposite," says Dale Gillham, an analyst at fund manager Wealth Within.

"As a bank customer you want low fees, good products and great service. As an investor you want more profit, which comes from lower costs and higher revenue and these are often driven by less service and higher fees."

Wealth Within is a bank investor, because returns in the sector are hard to resist, especially in such a small market as Australia.

Shareholders

"While we believe having banks in your portfolio is a good idea, my reasoning is a little different (to most analysts) in that we hate the banks because they charge too much and deliver too little but that makes them a good investment," Mr Gillham says.

"So why not get on the ride by investing in them? At least you will ease the pain of the high fees by getting some of your money back in dividends and capital gains."

IG Markets strategist Chris Weston says the big banks play such a large role on our share market that most investors cannot avoid them.

"In some ways, they are a good proxy of the market," Mr Weston says.

Low interest rates paid to savers have also seen many switch from being a depositor to a shareholder.

"Low interest rates have caused investors to look in to any assets that can give them a real return and banks fit this bill nicely," he says.

Hyperion Asset Management chief investment officer Mark Arnold says the big banks pay a dividend of about 5 per cent each year, fully franked meaning tax is already paid.

For most investors, that's a good return, especially compared with more risky shares or just leaving money on deposit, he says.

The strong capital gain from share price rises has also been a drawcard, Mr Arnold says, which has been driven by increasing revenue and profits.

However, it's this business model for making bigger profits that is also making customers unhappy.

Customers

"The domination of the big four banks means they traditionally run their business largely as an oligopoly," Mr Arnold says. "There's not a lot of competition about interest rates achieved on deposits or charged on loans.

"More competition might be bad for investors, at least initially, because of lower profits, but from the customer viewpoint at the moment, we're really just getting the big banks dictating pricing for all the key products."

According to Roy Morgan Research, some bank satisfaction levels are at an 18year high albeit up from a very low base as self-service and online banking remove some of the bad experiences.

However, there are still up to 30 per cent of customers unhappy with their bank and its service.

Roy Morgan also found the more money customers had, the more likely they were to be unhappy with their bank.

About 83 per cent of Australians who earn less than $45,000 a year said they were satisfied with their bank, compared with 74 per cent who earn more than $90,000.

Only 68 per cent of business customers rated their banks as satisfactory.

"There can be all sorts of reasons why people are not happy," Roy Morgan spokesman Norman Morris says.

"It could be because they're not getting a higher interest rate on their deposits or they're being charged too many fees or not getting a good service.

"It could also be because for some the whole experience is a grudge purchase.

"But one thing driving improvement is more banking channels, such as online and telephone. It makes it simpler."

People with less money are also likely to have less contact with the bank, and therefore less chance of things going wrong.

In contrast, people with more money appear to have more contact and more accounts, which could increase their chances of getting poor service.

"It's easier to please small customers; their needs are simpler," Mr Morris says.