Rhys Wood, director of Queensland-based AMP-licensed firm Elite Wealth Solutions, has forwarded a passionate submission to the Financial System Inquiry, via his local MP, assistant federal defence minister Stuart Robert, pointing to product biases existing within vertically integrated financial institutions.
“The most pressing issue within the advice industry is the existence of bias within the advice process,” the submission states. “Much of this bias results from the onerous costs and burdens of complying with the various legislation, regulations and interpretations as enforced by [ASIC].”
Due to the “cumbersome and expensive process necessary” to become a self-licensed financial adviser, most are forced into operating under institutionally-owned AFSLs, Mr Wood wrote.
He suggested that while “these institutions purport to conduct research into the various financial products and services available” and “claim to give consideration to the available products across the entire market”, in fact there are inherent biases in place to recommend the products of an associated product provider.
“Given that many of these AFSL holders are owned and operated by institutions that supply the financial products recommended to retail advice clients, AFSL holders develop APLs which virtually exclude all other products from providers who compete with their parent company,” Mr Wood wrote.
“As a result of the systemic bias within the AFSL holder organisations, clients are not recommended to use alternative financial products provided by a competitor of the AFSL holder’s parent company regardless of any superior ability to meet the client’s needs.”
This bias has a negative impact on clients and consumers by denying aligned financial advisers the opportunity to “freely consider, and recommend, all available products on the market”, forcing clients into products that may not be appropriate.
In order to reduce product bias inherent in the system, Mr Wood recommends reducing the “red tape” associated with obtaining an AFSL, so as to support the proliferation of a greater number of financial planning licensees.
The practice principal also recommends raising minimum education standards, introducing a “tiered system” for financial advice, and allowing advice fees to be deducted from super on instruction of clients.
Do you agree with Mr Wood about product bias at insto licensees? Have your say below
Whistleblowing AMP Say in their AMP Limited Market Disclosure Policy :-
As part of AMP’s corporate governance practices and drive to maintain an open and honest culture, a ‘whistleblowing’ policy has been developed that encourages employees, contractors, officers, agents and Authorised Representatives
Whistleblower representative of AMP Financial Planning has written to his local MP, raising the alarm on systemic bias towards in-house product at institutional licensees. This may highlight and correct the way they act. But what of their past transgressions resulting in flawed advice processes with planning and WILL they also come clean! Or is it again, one rule for one group of advisers and another for the more powerful institutional smoke and mirror operators!
Diligent INVESTIGATION will rid the procedure of these corruptions.
[quote name=”Gerry”]Hi Jarred. Yes, you’re right in this instance but it is case by case. I’ll stick with asset based fees for now Country Bob…it’s not me telling a client I should have “skin in the game”. A TTR strategy would be a set fee for advice by the way depending on time involved. Ongoing management of portfolio is a different matter.
Look, it’s just the way myself and the client feel comfortable. I have poor clients too…pro bono work is common. and no, I don’t go by the rich paying fees to subsidise the poor either. That’s our tax system, not my fee system.[/quote]
Gerry, I dont agree with the skin in the game concept but can see that your approach is rational and professional, you put the clients best interests first and foremost. There are many different fee models in all professions.
Our fees are calculated and negotiated based on a number of criteria. None of these criteria are asset based. We may have a $1m client paying say $6k and then a $4m client paying $30k but the price difference is based on what services the clients wants. I dont agree with the skin in the game theory either. We charge for services, not for investment performance.
Hi Jarred. Yes, you’re right in this instance but it is case by case. I’ll stick with asset based fees for now Country Bob…it’s not me telling a client I should have “skin in the game”. A TTR strategy would be a set fee for advice by the way depending on time involved. Ongoing management of portfolio is a different matter.
Look, it’s just the way myself and the client feel comfortable. I have poor clients too…pro bono work is common. and no, I don’t go by the rich paying fees to subsidise the poor either. That’s our tax system, not my fee system.
Interesting chat fellas. Gerry, you said “I have a client with $4M. I charge him a lot more than my client with $1M…but I scale the percentage down”. Then you said “My $1M client pays about $6,000. The $4M client pays $30,000”. Forgive me if my maths is poor, but $6k on $1m = 0.60% and $30k on $4m = 0.75%… How do you see the 0.75% on the big client being “scaled down” compared to the 0.60% on the smaller client???
Gerry, If you charge $6000 or $30,000 why make it a percentage? Why not say ‘ $4 million dollar client, I am going to charge you $30,000. How do you feel about that?’ Ah, skin in the game I hear you say. I don’t buy that either.
Dave, I charge a lot more than $8K I can tell you that. My $1M client pays about $6,000. The $4M client pays $30,000. But they have differing needs, different demands. The big one expects a lot from me, he gets targeted by bank planners everytime he walks in to get money out or rollover a TD. I have to help fight the vultures away as well as look after the family wealth.
I guess I could just start a private managed fund and charge say $100,000 set fee for that client…a private family trust perhaps. Become the trusted family adviser. One big client, a dream come true.
The good thing about this industry (to date) is the flexibility of charging methods. Let’s not welcome more intrusion.
Gerry, sounds like you provide good service, very similar to what I do, very few managed funds and mainly direct investments, including shares, hybrids, TD’s, etc.
For me, a $1m client could need all the things the $4m client does and thus would both pay the same fee. Unless the $4m client wanted to meet more often than the $1m client, then the fee would be higher. However, assuming they both wanted and needed the same thing, both would pay the same fee as the time, effort, expertise, etc involved would be the same for both, the only diff would be the $4m client might have a few more investments and/or larger investments in each asset than the $1m client.
My fee would be around $8k pa for both (assuming only diff between the 2 is $ value of portfolio), curious as to what sort of % fee would you put on each?
The flawed concept Country Bob, is believing that set dollar fees are professional and asset based fees are not. It’s getting taken out of concept.
I have a client with $4M. I charge him a lot more than my client with $1M…but I scale the percentage down. I’m not greedy. What would you charge a $4M client to manage his portfolio of direct equities, corp notes, TDs, managed funds and so on, ensuring cashflow is tax effective, sufficient, measuring the risk and volatility for the client’s situation. I am riding the markets up and down with them and meet many times a year, not just when I want my cheque and opt-in letter signed. The client wants my interest aligned…a fair request.
I could just wack it all in Advance Multi-Blend Balanced and charge a $30K review fee. Now there’s a thought.
Gerry. Absolutely flawed? Am I correct in understanding that if I come to you for advice around a TTR strategy for instance and I have $200,000 then you will charge me ‘$X’ and an ongoing percentage based on ‘$X’. My brother comes to see you the next day for the same strategy but he has $1,000,000 so you will charge him 5 times what you charge me? (oh, and I don’t buy the ‘I need to charge more because of a perceived higher PI exposure’ argument.
I do agree with Dave that some planners may position percentage based fees openly and truly with their clients, but because I don’t believe most do, then I believe we would all be better off just to ban percentage based fees and tell our clients, every year (yes, I support opt-in because I want to see my clients at least every year)exactly what they paid last year, and to be able to ask them how they feel about that. Since 1.1.2010 I have had one client refuse the renewal of their agreement.
C’mon Gerry, play nice. While my personal belief is in dollar based fees and this works well for me and my clients, I do accept that there are planners who charge dollar fees who aren’t great, just like there are excellent planners who charge % fees. This fee discussion to me is just like the product discussion though. Really, let’s all just accept that we all work in different ways, this is what provides competition in the marketplace and our primary concern should only be that all planners are working hard and doing the best they can for their clients, however they charge and whichever products they use. Some people prefer Holdens, some prefer Fords, both can be quite good cars and get the job done. Let’s use these forums to learn from each other and share ideas and keep the focus on quality advice – let’s not be childish and assume anyone who does it differently to us is therefore a dodgy planner…
Yeah right Country Bob….asset based fees have nothing to do with professionalism. I’ve seen more fee gouging on dollar based fees than ever before thanks to this supposed push for professionalism. It is an absolutely flawed concept. Dollar based fee for advice..absolutely…but dollar based for managing for ongoing maintenance of someone’s wealth. I don’t know about your clients, but mine want me to have skin in the game.
Oh hang on a sec….maybe I will go to dollar based fees. three years in advance please, we accept amex…thanks very much. I’ll be back for a review in three years time if I’m still around.
Well said Bob. Couldnt agree more, on both counts. You have to love what you do and believe in what you do and be able to look the client in the eye (and yourself in the mirror) and know you are doing the best and right thing by the client.
I also agree that quite a few planners who are now ‘dollar based fees’ are simply determining these by equating the $ to %’s… Hopefully this is just a stepping stone and they’re on the journey to developing a true and well considered fee model, whatever it may look like for them.
Incidently, NAB FP moved to 100% flat fees (initial and ongoing) from 1 April. Great to see a big bank taking this step.
Lots of very cynical comments in here. Is it not up to each individual adviser to act in the best interest of the client no matter where they hold their licence? I see the problem completely with the adviser. If you don’t like what your licensee offers and you are committed to delivering great solutions to your clients then move, even if it is at your own cost. Go somewhere else and build a business with a great EBIT and make it valuable.
Christopher Bates, I believe this industry will never be a profession while asset based fees still exist. July 1 2012 should have been the day they were wiped out, but instead the majority seem to have gone from a 1% commission to a 1% fee when ASIC and the FPA could have supported a move to dollar based fees only. A profession would have been within sight then.
Knights of Nee & anti-V – Agree, but think you’re missing the point. I’m a very experienced, very qualified, very professional planner who proudly works for NAB FP. I know clients dont read the FSG or SOA, which is why I noted that I very bluntly tell the client the client we own MLC and use MLC. NAB don’t hide this, in fact their current media advertising for MLC clearly states they are NAB owned. I know NAB FP dont make NAB near as much money as what MLC make NAB, and NAB FP exists in part to help MLC grow market share, but this doesnt mean that MLC dont have top quality products or that I don’t give very high quality and tailored advice and provide a vert high level of ongoing service and advice to my ~100 client base.
Dave – quite simple
Because they actually don’t make a lot of money out of “advice”.
They make it out of the products and the platform.
It’s all there in the Annual Reports
Dave – FSG and SOA are not enough, you know as well as I do that most clients dont read those as closely as they should. It should be branding on the office, on the stationery on all the relevant docs. The banks spend billions on marketing – why do they want to hide their brands when it comes to advice?
anti-VI – totally agree, and tell every client up front that our institution owns our products and we only use those products, but that shouldn’t bother them because they are good quality products and the biggest factor they should be mindful of when seeking advice is the adviser they are dealing with, not the institution or even the brand of the product. Unlike the retail fund advertising suggests, the biggest factor in a clients ability to protect and grow their wealth over the years is the advice they get, not the products they use. I dont think products matter that much if advice is sound, but I do totally agree that clients should be made aware of limitations. Not sure about others, but our FSG and SoA’s both explicitly state the relationship and APL limitations too, on top of me being very frank and honest about this with clients.
It never ceases to amaze me that ASIC and other regulatory bodies seem completely oblivious to this structural bias.
Well done Rhys, lets see AMP’s internal reaction to your commentary …
Breathtaking behavior on the part of the majors who profess that all is fine. Would they recommend such bias to their mothers? Sadly I suspect so.
Agree with RussellD, BUT there is no pretense that you’ll get anything but a Holden .. that’s inherently proper disclosure.
This is a problem decades old but never addressed because of institutional influence. It not only affects advisers in how they deal with client best interests but it affects independent product providers preventing some of the most innovative product from reaching the majority of advisers who are tied in this way. The simple answer is to separate product providers from advice providers n’er the two shall engage in both sides of the business.
Dave and RussellD – the point is not that advisers licensed by big instos are necessarily bad advisers – you are right that flogging AMP product may result in a client meeting their goals. The point is simply that it should be disclosed that the number of products on offer is restricted. If you go to a car dealer branded ‘Bloggs’s Cars’, but which only sells Holdens and has a commercial relationship with Holden, the consumer should know about it before making the purchase!
Agree with you Dave – 110%. And by he way – walk into a Holden Dealership, there is a very real and strong possibility you will drive out with a Holden car. The features will be tailored to your needs.
Let’s not forget about all of the efficiencies that come with using mainly 1 provider, and the increased weight one has to get issues dealt with and rectified when you are more significant to that provider, or the ability to obtain access to experts, service priority, speakers, client gifts, etc. The benefits of those things may be intangible, but the overall benefits and business cost savings from efficiency result in a lower cost of providing advice which should flow to clients also. I agree some products aren’t as good as others, but think product choice should be least of the things on the mind of any planner, aligned or not.
Let’s be realistic, is there really much difference between the various wrap accounts on offer, or the platforms on offer??? I am with a dealer group and use only their aligned platforms but have looked at enough others in the market place to know that the ones I use are as good as the best out there. Slight differences in fees, investment menus, etc doesn’t really matter that much. The value we provide clients is in the advice we give them, initially and ongoing. Do that many of you really think the product and it’s features/menu, etc is that relevant to the client or their ability to achieve their goals or our ability to deliver quality advice? C’mon… Unless you are using a significantly outdated product, these days, with such fierce competition, they’re all about the same, give or take. It’s like arguing if Shell or BP is better to buy fuel from, it just doesnt really matter so long as the car gets petrol!
It would be interesting to look into the books of the ‘real’ IFA’s that are referenced here (those that have open APLs and/or non-aligned licencees)… I would propose that even given free reign to select whichever product they like, advisers (like any other service providers) will demonstrate a level of bias towards certain products. This is not a dig at advisers, more just a reality of operating a business efficiently – it is inefficient and potentially detrimental to the business and therefore the client to have your recommended product spread across the spectrum of financial products/providers out there. As long as those biases mean that the recommended products do not detriment the client and are appropriate for their individual circumstances, in the end then both the adviser and the client win. I believe that some level of bias will always exist, however this is not automatically to the detriment of the client (as long as that bias does not over ride the clients goals)
Rhys comments that institution based planners are virtually forced to write business that is not in their clients best interest.
Perhaps he would care to elaborate on how he has managed to avoid doing this himself, because obviously this AMP aligned planner won’t have been writing any business with AMP when he “knows” it’s not the right thing to do.
Well said Rhys,
I moved from AMP/Charter in July 2013 after 7 years to an Independently owned and operated Dealer group based in Sandringham Victoria, best move I ever made, I pay a flat monthly fee inclusive of PI, and have excellent support on all matters if I require them.
Rhys
Not sure if you have investigaated the process but based on your proposed ideals you could probably have your own license and PI, etc for less than $50k p.a. How much is AMP taking off you and how much more could you do without them?
[quote name=”LJ”]Isn’t the biggest obstacle for small or independent AFSLs the need for PI and the lack of willingness of insurers to take on this risk?[/quote]
LJ, I have recently obtained my own AFSL and as each day passes I find out more and more that a lot of the information provided by my previous dealer groups is not true. In my opinion it is not difficult or expensive to run your own AFSL. I found PI easy to obtain (with the right GI broker) and in my case cheaper than what I have ever paid. I believe the key is to employ a good Compliance Consultant and have good processes with a client focus. Structure SoAs, RoAs, etc with simplicity in mind and you not only limit your risks but are more in line with ASICs guidelines as well as providing clear, concise advice documents to your clients. The will not be confuse or overwhelmed by bulky documents. Get out there, give it a go. Explore the option to become completely un-reliant on groups with agendas.
How could anyone disagree?
The question is why does it continue?
All FOFA did in relation to this was drive consolidation further and exacerbate the problem.
It is totally fair that institutions have distribution channels and be entitled to sell their product. However they should not be dressed up to be “advice” when they are not.
Nor should they be using names that are not easily identified as being an institution and deliberately mislead their potential customers into believing that are dealing with someone other than the institution.
Rhys, spot on . whilst the “the home of financial planning”, has been creating the perception of non bias is AR base, try and get an approval for non amp platform through the research! good luck.
I have operated my practice with 2 of the largest dealer groups over 7 years.
They would love me to peddle their product exclusively but it isn’t a requirement of either.
I come from a newer generation of advisers (post 2007) that advise clients based on what is right for them. That is it.
If the licensee product doesn’t fit then I look elsewhere, firstly on the APL, then further a field. I regularly use the process to gain sign-off for non-APL products. Interestingly this process isn’t required for Industry Funds OR Employer default funds – they are approved (although we are encouraged to seek supporting research where available).
I service about 70% of clients on the platform of my licensee’s biggest rival – my licensee doesn’t like it but they can’t force me or the clients to change.
I am yet to write a single risk policy from my licensee’s product range (it isn’t up to scratch for my clients) – I have been with my licensee for 2.5 years.
Isn’t the biggest obstacle for small or independent AFSLs the need for PI and the lack of willingness of insurers to take on this risk?
I couldn’t agree with Mr Wood more. I recently left AMP and joined an independent dealer group because of this. The worry is such bias is so in-bedded in all institution owned dealerships, the advisers, who have been in them for all their career no longer see there is anything wrong with it.
The simple fact is…if you write new business under the institution’s product your business multiple is better at sale time and you can get better platform pricing.
On one hand ASIC recommends consumers see an independent adviser, but on the other hand they want adequate compensation for consumers if something bad happens. Big listed companies have cash, they have size and scale. Small players do not and they are disadvantaged as a result. It’s a minefield out there.
Tim Ross historically you are correct, and Fabio’s point is a valid one, however there is one dealer group which pays “daily”…is not “small”.. and I doubt will sell out, and has an open current APL, all of which I took into account when changing dealership, amounting to their point of difference in the market. The reasons you have stated not to change to a non-aligned dealer group has merit but there is a choice out there which deals with these issues.
Fabio (and all), AMP have the largest group of advisers under their different dealer groups (ipac, Charter, Genesys etc etc). It is an indictment on the industry if the majority of advisers (on this site anyway) agree that vertical integration is crooked but choose an AMP dealer group based on their remuneration (or sweet deals). Time to put up or change.
You can’t say that out loud and in Public Rhys. That’s meant to be kept under the carpet and never should a client feel like they are going to get what is written on the tin. The industry will never take the next step forward in moving to a profession while institutions are in complete control. Great work!
Having had a risk AFSL for 5 years, I know that ASICs preference is to have as few AFSLs as possible. Their ideal world would be limited to 50 AFSLs so they could police activities more closely with fewer resources, PLUS scare the hell out of every other AFSL with the odd Enforceable Undertaking on a big dealer
Well written Rhys.This article is long overdue, & serves as proof to the nonsense that ASIC sprouts about in protecting the consumer.
I commend him on his passion but I am not convinced that even independent advisers freely consider, and recommend, all available products on the market. The universe of products needs to be limited by the AFSL or the time. money and resources needed for APL maintenance, research and ongoing education spirals out of control.
Personally, I believe that an effective and sustainable advice industry requires independent licensees so, self interest aside, I think advisers should consider what type of advice they want to provide.
(on another note, I suspect the adviser could not have published this without the approval of his licensee, so AMP’s willingness to have these views aired publicly does them enormous credit.)
I agree with Mr Wood’s comments overall.
Further to Mr Woods comments I see another similar scenario arising within the industry fund network. Although they dont pay commissions the members have the option to pay for advice fees from their superannuation accounts. The collection of this fee is limited to a very few though, being either the in-house planners or the industry funds financial planning network. This not only limits the product advice but also where the advice can be sought. Particularly in the case when the only avenue that a client can pay for advice fees is from their superannuation.
In both Mr Woods case and my thoughts on the Industry Funds strategy both arrangements seek to protect the interests of the product and funds over the interest of the client/members freedom of choice. Both strategies produce similar end results where clients simply seek truly independent advice.
Congratulations for coming out and telling it as it is. As a provider of an independent platform that is far cheaper then anything AMP can put together…but will not approve, I totally agree with what you have said.
Well said, but its a really tough call – getting aligned with a small licensee is appealing but some of these have gone broke and advisers have had their remuneration frozen or they have sold out to instos in the end anyway. Sadly there is too much red tape in the licensing and there are too many with vested interests and deep pockets who wouldnt want to see the status quo change. My small firm spends around 20% of its turnover in licensee fees and plan costs. There must be a better way to deliver quality advice at a reasonable cost all round.
Stuart – sometime is hard (or uneconomical) for adviser to vote with their feet. Lot of advisers (specially the financial planning adviser/owner) that are next to retirement age (baby boomers) get really sweet deals from the Insto counterparts (not all advisers have the clients welfare in their mind) or it is just ineffective to go through all the hard work when you plan to retire in a few years. It is not an easy choice
Fantastic and very accurate comments from Ryhs. The APL process in most large instututions is terribley ineffective. There are well resourced and qualified research people at the likes of Lonsec, Zenith and Morningstar. The large groups buy this and then ignore it. Instead putting in young inexperienced and under resourced research teams to offer their planners a very limted and out of date approved product list.
Also agree with tiered system. How can a inexpereinced planner at a bank selling a model portfolio via an expensive retail platform be called the same as an experienced independent planner offering tailored advice.
Not sure optional platform makes a difference. Any platform worth its weight today has upward of 300 managed funds, direct equities, TD’s, SMA’s, ETF’s etc. Platforms are becoming the classic commodity. It is the ability (or not) for the adviser to invest in all of the investment options offered on the platform that makes the difference.That is where APL’s can be the advisers friend of foe. As James pointed out, the dealership does not infinite resources to research and approve every investment option. However some dealer groups are more open than others. Shouldn’t advisers vote with their feet and choose more open dealer groups than AMP if they believe their is bias?
Well done for speaking out Rhys Wood. I bet YOU would take the fall if the bias was identified on a client. But this is not news to those in the industry – how is it that ASIC do not know of the practice!
Join a non-institutionalized dealer group. They would be happy to have you with your client focus – best interest attitude … they take care of the red tape for their advisers. and if you choose the right one they will also stand up for their advisers, and give us a voice in the public domain.
Well done! This is one of the core issue that made me move from an Insto delear group to an independent one!
It is harder, but there are ways. And articles like this should go on general media newspapers!
I agree with his views however organizations like AMP would need to carry out comprehensive research on these additional funds at there expense and be responsible for the the actions and recommendations of there authorized representatives. Optional platforms may be an option provided the approved list of investments is extended to cover SMA’s, Etf’s and managed funds that have appropriate research.
Well done Rhys for speaking out! I totally agree on all points raised. As an adviser looking to ‘go it alone’ I’m finding it increasingly difficult without the ‘support’ of an aligned dealer group. This includes finding a book of clients, obtaining finance and APL, for someone who doesn’t have a heap of cash behind me unfortunately I’m going to have to rely on aligned groups if I want to go down this path. It should be so much easier!
Also agree with lifting education requirements to a degree minimum, with a masters/CFP/FCHFP as preferred.