In its second submission to the Financial System Inquiry (FSI) – released overnight – the corporate regulator revealed its support for increased disclosure requirements for financial advice businesses licensed by institutionally-owned dealer groups.
Specifically, ASIC has flagged the possibility of “requiring advisers to provide a prominent, simple statement” about the adviser’s relationship to product providers and the approved product list choices available, or even requiring an aligned advice business to describe itself as a “restricted advice business”.
In addition, the submission reveals support for the push for the government’s proposed adviser register to include this information, as currently being debated by the industry working group and as previously reported by ifa.
Reflecting on the recent Roy Morgan figures suggesting consumers are still confused about levels of independence in the financial advice industry, ASIC says the time has come for more transparent consumer-facing information provision.
“The inherent conflict of interest created by vertical integration may not be readily apparent to clients, particularly if the product manufacturer and advice parts of the business operate under separate licences and business names,” the submission states.
“Better informing clients about the nature of vertically-integrated business models and their implications for financial decision making will go some way to increasing consumers’ understanding of these issues.”
The submission is a response to the FSI interim report, which also floated the idea of more obvious differentiation between independent and aligned advice.
ASIC’s submission also backs calls for a degree minimum education standard to be introduced across the advice industry, and proposes that general advice be reclassified as “product sales”.
Should the adviser register contain AFSL ownership info? Have your say at http://www.ifa.com.au/poll
I think the plot is well and truly lost in this debate. The bottom line is if there are bad advisers then they should be banned or if proven of committing an offence should be subject to the full force of the law. This whole debate has been cleverly hijacked by ASIC to defray the spotlight on it for being a weak and ineffectual regulator. What on earth is calling someone restricted, limited, non-aligned or any other name got to do with individuals being provided with advice that is or is not relevant to their financial needs and wants. In every profession there are bad or incompetent people that simply should not be doing what they are doing. But for financial planners the ASIC promoted belief is that ALL advisers are bad or incompetent and charge too much which is simply not the case. Advisers need to fight back at the source that is attacking them.
So Steven Skinner if an accountant charges $3k to $5kpa to do the SMSF tax and audit that is not a recurring fee ? What is the basis of their fee ? We had a client charged $5k for a SMSF audit and tax return where all the investment info summarised by Praemium. We saw a client yesterday being charged $3k pa for a SMSF which was still in accumulation stage ( even though the clients is 72 y/o and on the age pension ) where was the advice ? Has being paying 15% too much tax and also receiving less age pension due to deeming. We will be moving him to a wrap where the tax /audit fees will halve and we will review his investments quarterly, assist him with tax planning and age pension planning and meet him and his wife once a year to discuss their personal circumstances. And yes we will receive an ongoing fee for that. Client very relieved to be moving away from an accountant that provided him with no advice and had him set up in a SMSF that he did not need.
J[quote name=”John Paul”]Steven, did you know that Accountants get 10% commission when they sell Xero as a software solution to their business end clients? do you think an accountant has ever disclosed this?[/quote]
The more Xero clients the higher the rate of commission. Don’t start on audit insurance. Or SMSF ‘advice’ from Accountants.
Steven, did you know that Accountants get 10% commission when they sell Xero as a software solution to their business end clients? do you think an accountant has ever disclosed this?
Hi Michael, one of the catalysts for the current series of changes was Storm Financial, they held there own license not institutionally aligned
Common sense at last. This is exactly what is required. The impact of this is that the instos will stop funding loss leading advice practices as they will no longer be any more viable than a branch. The good advisers back themselves and their clients will support them. The others can go and work as a bank rep or the like. All of a sudden a whole lot of issues disappear providing the remuneration remains in such a way that the client pays, not the receiver of the client’s fund. The change can’t happen soon enough.
‘Restricted’ seems to be the wrong description and overly simplistic.
There are institutionally owned groups that have a wide APL (platforms and insurers not owned by the parent group) and where non-APL products can be recommended where they are the best solution for the client.
There is a need for product and service quality control after all (as long as this is not abused so as to control distribution).
The proposed solution here is misleading as once again it focuses on product, not adviser competency on strategy, understanding client needs, implementation and ongoing service.
Hi Nigel, we are not too far apart. I’ll put it this way…
In the CPA Code of Conduct it states that an accountant should not place themselves in a position where a conflict may arise.
The FPA Code says, a conflict of interest will always arise and its ok provided it is well managed.
… there is a massive difference in the 2 Codes and this is really my point.
If financial planners want to be treated as a profession, then they need to back to basis fundamentals of truly what a “profession” really is.
Accountants are self regulated whilst FOFA is trying to impose regulations on the Financial Planning Industry… and this is a shame.
The Financial Planning Industry bodies are not doing a good job and need to start again. Impossible to create a Profession given the way the financial planning industry currently operates and that’s a real shame.
Hi Steven, I understand what you are saying but couldn’t an unscrupulous accountant take advantage of this and put themselves in this position? My point is that it is the ethics of the individual (accountant or financial adviser) not necessarily their association to an institution and this can’t really be put on a register. A client of an adviser might recommend a product to implement strategic advice – as long as everything is disclosed and the adviser does not receive anything from the product, even if they have an association with the product provider this is a similar situation. Likely we have a different view of the situation but that is always healthy as long as whatever is put in place has the intended outcome.
Marcus, the Count group was largely built on the back of accountancy practices and some took the fat cheques to join CountPlus. All of which owned by CBA of course so perhaps banks do own accounatncy practices after all and perhaps the Accountancy “profession” is just as happy to turn a blind eye to fee for service when a fat cheque is on the table from an aligned product provider.
Hi Nigel
No, I am certain I got your point and there is a big difference in making a recommendation and providing advice.
If the client engaged the accountant to provide “advice” of the most suitable SMSF then the accountant should provide independent, free from bias advice and should NOT manage or audit the fund.
On the other hand if the accountant made a “recommendation (not advice)” and the client made a decision where the accountant would manage and audit the SMSF, then that’s fine. Provided the accountant, disclosures everything and does NOT receive any income other than from managing and auditing the SMSF.
Sometimes its a fine line… but a “Professional” should never put themselves in a position where a conflict of interest “may” arise.
Fees should ONLY be paid where there is a direct connection between fees and services provided. IMO this doesn’t include any fees that are recurring in nature.
Great idea, wrong phrase. “Restricted” may indicated that an authorisation is restricted. AFSLs are entitled to do this based on adviser experience and training. HNW Planning has Restricted Authorities in super, insurances, investments and credit.
A better term might be “Institutional”.
Alternatively, allow non-institutional advisers to call ourselves “independent”. Consumers’ understand that to mean non-institutional.
[quote name=”Steven Skinner”]Nigel, not a conflict since they are only making a recommendation and NOT giving advice re the SMSF. Also not a conflict unless they receive an ongoing or “payment” from the SMSF. Their “fee-for-service” and total income should ONLY be from managing and auditing the fund.[/quote]
I think you missed my point – isn’t there still the possibility of recommending SMSF over another suitable product because they will receive additional fees – it is about conflict of interest with regard to product / structure not advice – if the accountant recommended say a wrap super platform then they are doing themselves out of fees for example so hence might that provide incentive to recommend SMSF structure over super platform – but we can agree to disagree – all good debate I was just providing an example. What is actually implemented in the industry / profession is likely beyond our control but I just worry that it might not solve the problem.
Nigel, not a conflict since they are only making a recommendation and NOT giving advice re the SMSF. Also not a conflict unless they receive an ongoing or “payment” from the SMSF. Their “fee-for-service” and total income should ONLY be from managing and auditing the fund.
At least the ASIC push is a start in the right direction but why would “planners” in truly vertically integrated businesses not be product sales people? Especially those housed in institutionally owned premises, with provided support staff, “free” IT systems and blanket PI cover.
As for those in more “loosely” aligned AFSLs maybe having to prominently did play the term “restricted” is adequate but I don’t think so.
For the protection of the public, all consumers need to clearly know if their source of financial advice has any conflicts before they engage.
Is it a conflict of interest for an accountant to recommend an SMSF if they are going to be receiving additional fees for managing and auditing the fund? Should they only be allowed to recommend a SMSF if they do not manage / audit it? Just an example.
[quote name=”Matthew”]Degree qualified, fee for service, no commissions; end of problem![/quote]
Agree with education standards being lifted – do not believe it would be the end of the problem as unfortunately no matter what is put in place there is still the potential for highly educated fee receiving advisers driven by greed to do the wrong thing as is the case in all walks of life. Strong penalties maybe a solution??
Degree qualified, fee for service, no commissions; end of problem!
Higher Education: Is critical to ensure a standard in a professional industry, but it won’t stop poor advice (product and strategy) caused through a conflict of interest.
Vertical Integration: Doesn’t have to mean poor advice, but where advice is driven by KPI’s and/or remuneration incentives, it is likely to. Therefore, we need this made clear.
APL: In the interests of full transparency, perhaps APL’s need to be made public. Why not? Who’s interest are being protected by holding them secret?
Independent – Should only be so when there is a very broad APL, no white label products, and a non-aligned dealer group. I hope they can continue to evolve, survive and flourish!!!
I’m with a so called “non-aligned” group and I can tell you, they are just as conflicted and becoming even more so with their renewed push to white labelled arrangements and striking everything else off the APL. Just having an APL should attract a “restricted” tag. Perhaps the clever regulators and “know it all” magazines like CHOICE ought to converse with PI insurers and FOS etc before they start rattling off proposals. Hey, maybe they should even speak to some satisfied clients first…doh woops never thought of that.
Perhaps while they are at it they should look at direct licensing of all advisers, then current dealer groups just become service providers to licenced financial advisers – don’t know how it would work but I believe it should be looked into.
Marcus, good point re accountants!
I’d like to suggest that the ATO owns all accounting firms! Then the ATO pays the accountant a recurring “commission/fee” based on how much tax a client pays.
Sounds ridiculous doesn’t it?
An accountant gets paid a “fee-for-service”, that is, for tax advice. The Financial Adviser should get paid a “fee-for-service” based financial advice given to the client. Eliminate recurring fees and you eliminate ALL “conflicts of interests”.
The financial planning industry must decide if they want to “sell products” OR become a real Profession and “sell advice”…this is their choice… make it!
WTF, have we gone totally mad? Firstly all authorised reps are already on ASICs register why are we reinventing the wheel? Secondly there is nothing stopping a boutique (Independent) from using only one product and only one insurer – why are we even considering this crap? Shouldn’t the answer be at the dealer lever – ensure all “worthy” products are available on APL and no incentives to using in house products – problem solved (Limitations explained in FSG) – after all we already have best interest duty?
In a lot of cases the institution owns the license, not the advice business which is also an important consideration as separate to advisers employed by a financial institution. Products are only utilised to implement strategy in the end, if the institutional product is competitively priced and provides competitive features that should be OK. If it doesn’t the adviser needs to recommend a different product (I would assume most licensees have a one off approval process for products not on their APL).
Clients being told who the real owner is and where the alliegances lie is essential and has been needed for many years. Use of the word “restricted” may not be possible as bank advisers are not legally prevented from recommending external products. But some term that conveys that they have preferred in-house products is essential. This need not detract from the fact that many institutionally aligned advisers give very good and beneficial strategic advice.
Obviously all the lobbying and donations made by the big end of town may not have been enough. This was always the simplest solution. Lets see if it gets any support in Canberra
Finally, commonsense has entered into the discussion. ASIC’s submission is basically a re hash of statements made by one particular Judge who was part of an inquiry into the financial services industry last decade. It is the only true solution if Financial Planning wants to be recognised as a profession, and as it should be. You do not see Accounting Practices owned by Banks.
smithy, it ain’t banned it’s just very specific – self-licensed, no commissions (including risk), no asset-based fees etc – this submission sounds pretty monumental to me. will be a massive bunfight when it comes to who is ‘restricted’ ie what about non-aligned groups with product?
I think the APL and if the adviser can recommend products not owned by the licensee is more important. I’m not sure but can non aligned licensees receive grandfathered volume bonuses from a platform arrangement? That is also a conflict of interest just as much, if not more than institutional ownership perhaps. Just a thought.
So an ‘aligned’ adviser that has as wide an APL as a non-aligned adviser will still have to say they are restricted?
What about ISA advisers? Will they have to say they are ‘conflicted advisers’ as they work solely for sales/retaining their employer’s products…?
Also the use of the term ‘independent’ is specifically banned according to ASIC’s own rules – bizarre and pointless submission.
You can have junkets and long lunches, insto-funded PD days and sponsorships – the lot – as long as it is disclosed to the consumer. It is the culture of secrecy that needs to end, not the structures themsleves. consumers need to choose freely, if they want a more ethical/influence-free adviser then they should have the information (and be willing to pay more).
As long as advisers EXPECT free or cheap overseas junkets, and subsidised operating costs and long lunches, it won’t matter how open the their Vertically Integrated AFSL apl is, advisers in those businesses WILL write mostly group product. Those advisers are restricted; by their mindset.
good point knoxy, the term ‘restricted’ has not worked in the UK, put the instos and wirehouses on the back foot which means the lobbying $$$ starts to flow!! we need disclosure of onwership without completing alienating aligned advisers.
Can someone please tell me, why has it ever been acceptable to allow “inherent conflicts of interest in vertical integration” in the first place?
It’s impossible to provide Professional Advice, where a conflict of interest has the possibility to exist. Sure charge me a “fee for service” and stop charge me a recurring ongoing fee and ONLY then will ALL “conflicts of interest” be eliminated.
This has a very noble intent and needs some ongoing thought but its heading the wrong way. ‘Restricted Advice’ isn’t a true statement and will get legally challenged.
What needs to be addressed is ‘agent’ of …..etc.