The review – which examined advice provided by a number of institutionally-aligned licensees from 2015 to 2017 – found that 68 per cent of all client funds across these businesses were invested in financial products owned and operated by related entities.
The finding comes despite the fact that 79 per cent of financial products across the reviewed licensees’ approved product lists were external, with just 21 per cent made up of in-house products.
While the behaviour differed across licensees, “in most cases there was a clear weighting in the products recommended by advisers towards in-house products”.
Moreover, a review of samples files where advice to switch products to an in-house product was provided found that in 75 per cent of cases the FOFA best interests duty was not complied with.
ASIC will now “consult with the financial advice industry” on a proposal to “introduce more transparent public reporting on approved product lists, including where client funds are invested, for advice licensees that are part of a vertically integrated business”, said a statement from the regulator.
The licensees reviewed in this investigation were AMP Financial Planning, Charter Financial Planning (AMP), Millenium3 (ANZ and soon to be IOOF), ANZ Financial Planning, Commonwealth Financial Planning (CBA), Count Financial (CBA), GWM Adviser Services (NAB), NAB Financial Planning, Securitor (Westpac) and Westpac Financial Planning.
However, ASIC deputy chairman Peter Kell said any remedy would likely involve licensees beyond those mentioned.
Let’s be creative and see what other business models there are for financial planners. Do doctors earn their income from the manufacturers of the drugs they prescribe or the specialists they refer to? The government should also make it easier and less onerous to be a licensee. All products used should be APRA approved. That would be a good start.
Surely the bigger issue here is why did ASIC restrict their investigations to licensees owned by private sector funds and not investigate any licensees owned by union funds? The underlying principles and laws are exactly the same. However I suspect significantly more than 68% of union fund licensee recommendations are being directed to union funds.
ASIC seems to have an unofficial “look away” policy in relation to union funds and accountants.
The merry go round does another lap.
[b]”The licensees reviewed in this investigation were AMP Financial Planning, Charter Financial Planning (AMP), Millenium3 (ANZ and soon to be IOOF), ANZ Financial Planning, Commonwealth Financial Planning (CBA), Count Financial (CBA), GWM Adviser Services (NAB), NAB Financial Planning, Securitor (Westpac) and Westpac Financial Planning” So Why not Australian Super, HESTA, CARE Super, HOSTPlus, CBUS, and all the others? So it’s OK to find out that a client has a balanced risk profile then you stick them into a high growth growth fund and then call it ‘Balanced”? And what about having 30% of funds invested in ‘Alternative Assets’? What the hell are Alternative Assets anyways? Can be anything that’s not transparent if you read the PDS’s. No conflicts there. Give me a break
Two points for me.
Firstly no surprise and before all of the aligned advisers get all defensive, your licensee fees are subsidised by your parent companies and therefore they expect you to use their products. If you are turning over a $1m of revenue and paying $25k in licensee costs, you are living off product revenue. You are a substantial risk to your licensee so they only support you as there is a commercial benefit to them. I actually have no problem with it or the fact a AMP client gets AMP product, just don’t get upset when it is pointed out and yes it is a fundamental conflict.
Secondly, this is the problem with the current definition of ‘Independence’ and s923A of the Corps act. Licensees and ARs that receive no product revenue and have no alignment or incentives with any financial institution or product provider cannot differentiate themselves from vertically integrated businesses because they receive commissions on life insurance. Commissions which are now standardised under LIF and therefore can no longer be argued to create a conflict (if there ever was any) as remuneration is the same for all product providers.
ASIC needs to develop common sense.
This is a stupid article. Even those outside of the dealer groups mentioned use one to two platforms for all their clients. The administration in these things are too hard for staff to operate otherwise. And if a practice decides no we will use say 10 platforms then guess what the consumer would be paying for it and for no real extra gain. Its the underlying investments and asset allocation that is the return driver. So long as the platform they use is competitive I don’t see the issue. And yes, why are industry fund advisers not recommending that the client go to a retail platform or another industry fund? How does that fit in to the scheme of things. I am so sick of articles trying to scare the uninformed public who then just go along and believe this rubbish.
Is anyone even surprised lol
Agree, this is not news, it has been like this for the last 15 to 2 years since Banks got into it, ASIC you are wasting tax payers money and slugging Financial advisers a levy…….. what for to tell us the obvious!!!
Without financial planning advice being cross funded by FUM in in-house products, most dealer groups would not be profitable. Take away the FUM subsidies and advice fees will need to dramatically increase. Well done ASIC, as usual no understanding of actual impact of your ideas on the consumer.
There’s no mention of efficiency and the cost reduction that efficiency provides clients. If, for example, I am with a AMP dealer group and therefore predominantly use AMP products, I have all client data, reports, info, etc at my fingertips to print, access, etc at any given time which is efficient. If a client instead has super with an industry fund who offer none of these efficiencies and actually require a new authority for me to even get info every year, this adds an hour or more to the process, especially if they are my only client with a product with that company, which adds more hours so I can research and become up to date with it again. That client then needs to pay me for several hours extra work compared to the AMP client and thus that clients fees would be in the order of $500-$1000 more per year. Does ASIC recognise therefore that the client being with AMP, BUT paying a lower advice fee, is therefore actually better off in spite of the AMP product perhaps being an extra $100 pa more expensive in base fees?
Sadly, our industry is being directed by people with no true understanding of what we do or why and thus is headed in a bad direction.
ASIC … how many hours and at what cost did it take you to reach this conclusion?
We could have told you for free!
You not listening!
Just a BIG Corporate bully… attacking all the good planners who have their own licences and try to do the right thing by their clients!!!
And what about life insurance products where there are demonstrably better alternatives to in-house bank products!.
I thought all the banks except Westpac had sold their insurance products? And Westpac’s product (BT Life) is actually one of the best in the market.
Great lot of nothing. ASIC needs to provide the detail and not be generic. In house retail planners have a higher bias than non salaried planners. Either way, remove the vertical integration affect and commence cleaning the industry. How can ASIC be comfortable with the behaviour of the large institutions, and their propensity to shift blame. Who is the biggest Challenger annuity referral partner, Westpac. Wowee. A bank has all these client needing a 5 year annuity.
Don’t forget the industry funds and their “advice” services
But ASIC did forget to mention that the house also charges internal clients a tad more than external clients. But alas, the bank and their fat cats will continue until they destroy everything.
How can any Independent adviser firm or planner really recommend the best for a client, when they are rewarded for building their book and in turn the value of their business based on recurring incomes. If you simply recommend industry funds and have no recurring income, what is the value of your business?
Is this not a conflict?
when will industry funds be honest on their deals with unions, and pay offs
Since you are obviously a union booster and not a financial adviser, let me explain how recurring revenue for superannuation advice actually works these days.
Advisers provide consumers with ongoing service via optional ongoing fees. Not by commissions. It makes no difference if the super fund is a union fund, a private sector fund, or an SMSF. The process is the same. Most super funds, including your beloved union funds, allow the member to pay for ongoing advice from super, as it is more tax effective to do so. Consumers can cancel the ongoing fee at any time. If they don’t re-sign an ongoing service agreement every two years, the ongoing fee is automatically cancelled.
I’m actually surprised that you have time to spruik your misleading garbage about union funds in the financial press right now. I thought all union boosters were currently focused on trolling social media to justify the greedy NSW rail strike.
There is one industry fund I have seen (from the inside) and their advisers had one solution – industry fund product. Everything else was scoped out, refer elsewhere.
Does this not count as vertical integration? If so, why not?
By the way, this particular industry fund did also charge ongoing recurring fees.
(I understand there are other industry funds that work differently)
Ha – really ASIC?? Yet ASIC made up a biased and inaccurate report 413 which will drive out of business a lot of non institutionally aligned advisers. Laughable joke.
Surely none of this is a surprise, the following has been stated by many, I go to a Ford dealer I expect to be sold a Ford not a Holden! However several things concern me, one area of conflict missing in the report is that whilst the APL may have 29% In house funds and 71% of non-aligned funds (this is primary window dressing) as the Adviser soon learns that if they 100% want to use non-aligned funds there is likely no back office support nor time to implement and review these clients funds down the track so the path of least resistance is to support the inhouse product, where you can get balances, information etc easily and quickly This is a type of conflict where the same resources are not allocated to for use of non aligned funds versus inhouse funds so in the end the path of least resistance is to use the aligned funds and get the added admin support.
The other point we all should be concerned about is only 25% of files were compliant and 75% were non-compliant with 10% with significant concerns. Now those Integrated dealers have some fairly robust compliance systems, reasonably resourced etc these days, if they don’t measure up how will other Advisers go if ASIC knock on their door?
The more things change, the more they stay the same …
FoFA has been proven to be ineffective, all that was/is required is that if a Product Manufacturer also owns a distribution network ie Advisers, then that AFSL must have an open APL, where Best Interest alone will determine the product solution that is best for the client.
This is a nice sentiment but ultimately… its fairy land. By the time you’ve undertaken the research on every product in the market you’ll not be seeing any clients…
Why doesn’t ASIC disclose all the wages of it’s staff, surely the general public should know, what their taxes are paying for, so they can make an informed decision to see if ASIC are doing the right thing by them. (paid for out of their wages each time a customer uses a financial product) As for bias towards the dealer group, well does ASIC want the adviser to recommend a product that he has no training on? All dealer groups train certain products, even with 28 years experience I do not know all the features of every insurance contract available. I tell my clients I favour 5 companies over others due to their quality admin, regular returns and credit rating and if one of them is AMP or CBA who cares, I have done the right thing by my client,
To quote Charlie Munger of Berkshire Hathaway fame: “Show me the incentives and I’ll show you the outcome.”
So when is the Govt & ASIC going to tackle the elephant in the room of vertical integration FP advice with product providers? Planners have been slapped with compliance and now onerous re-education requirements, when all the time it’s been industry structure & incentives to blame. Split the industry, licence planners directly, and call product sales what it is: “sales” not advice.
WOW ASIC – Talk about a deep (laughing) investigation… to find the blindingly obvious!
Mr Kell and Co. given that you are introducing the industry funding model, can you please give us an undertaking that such puff pieces won’t be wasting our valuable money in the future.
For the sake of our profession, please spend your time developing a frame work that allows smaller niche players that take their fiduciary duty seriously to thrive. eg. Self Licensing, Plain Language SOA’s, reduced red tape.
History has shown that change does not occur by making large Institutions do the right thing by continuously hitting them with a limp stick or an EU. All the happens is the next bunch of C-Suite players step into the breach and utilise the same learnt behaviours under a different guise (goals based planning, net promoter score or vertical integration anyone).
The ground swell required will occur when current planners or those about to enter our industry see the best course of action for them is to work in an environment where doing the right thing is without question easier, more enjoyable, just as profitable (the elephant in the room) and without question more Professional.
In short – your focus as a regulator is wrong. Start using a Carrot to drive the desired change because your policing using the stick is clearly not working. And if you think it will… then this profession has already lost because we are on a hiding to nothing.
The problem at this point is that there is a problem….
CBA recommends Colonial First State (CFS) which they fully own, so do a lot of independent Advisers recommend CFS.
CFS these days are a Manager of Managers, rarely would someone get all CFS funds. Client normally gets the best of the best in that asset class – Magellan, Perpetual, Investors Mutual, BT, Platinum etc, and CFS are just the admin platform.
We all favour our own platforms or particular platforms and making it a central platform means, it is easier to administer, monitor and transact for our clients and reduces our costs and therefore the cost of advice to our clients.
Did they look further into what the client actually has or what they were recommended as the product does not tell the whole story.
Does a one legged duck swim in circles?
When I worked for NAB we were told we would sell NAB products and we would like in no uncertain terms!
We should all be worried about Best Interest Duty as they are applying it to situations years ago before it came in..
Recent case the Ombudsman stated that best interest would have been to recommend 15 years ago, the current product they were in and they would have been $200k better off today – pay them this amount. Performance is something we cannot recommend as a reason to move, switch or stay and the future is unknown.
They have opened up Pandora Box and no one will be safe.
This is potentially frightening. Do you have the case number?
Breaking: water is wet
Surely it is no surprise that firms branded as AMP/ANZ/CBA/NAB/Westpac sell products from those companies. It is what consumers would expect. It is why they go there.
What is surprising to most consumers is that firms like Charter/Millenium 3/Count/Securitor are controlled by the big institutions. They expect those firms to be independent. Why on earth doesn’t ASIC apply the simple and obvious solution to this whole problem, and force these companies to operate under their parent company’s brand name??
Normal people make decisions based on brand names. Normal people make decisions based on common usage definitions of words. Perhaps in an ideal world they shouldn’t. But 99% of them do. It is pointless trying to provide consumers with ever more fine print disclosure. There is too much bureaucratic disclosure already, so most people just give up and read none of it. ASIC you cannot change 99% of people in the community to be like your co-workers. Accept that most people are completely different to you, and adapt your methods accordingly.
Best suggestion I have heard.
Shame you didn’t apply your name to this comment ‘Anonymous’ as I’d like to know who put such profound, common sense and direct reasoning so clearly. Hand on heart, I hope ASIC reads and learns from your words. Little things like this can turn around whole industries when the right people, caring people, read them and act on them. I’m hoping against hope there are still some people like that left in the sterile heartless nonsensical halls of the ASIC office.
Sometimes (actually most often) the simple solution is the best. If ASIC cannot stomach cancelling the AFSL of these businesses for rampant failure to comply with s961B (obviously a scorched Earth outcome but AFSLs not lucky enough to have an Insto parent get necked like this fairly regularly) then it can achieve a probably superior outcome by removing the illusion of independence for these conflicted AFSLs. Then make it simpler for other AFSLs to differentiate and let consumers decide.
Simple solutions often fail because they simply fail to consider all the issues…
However, in this case, even though I am licensed by an AFSL that is owned and operated by a company that also offers products, I for one would have no problem with some truth in advertising around Licensee names.
The great benefit to consumers is that they are very clearly made aware of the relationship and can then apply a greater level of scrutiny to any recommendation being made in favour of an in-house product. I’m not afraid of this, but I’ll venture many would be.
So what?? What I couldn’t do with a tax payer funded ASIC salary
Not a great surprise here and there are certainly those advvisers that push one product for all types of clients. However how many firms & advisers strategically align themselves to a licensee in which there own product suits majority of that firms target segment and is in actual fact in the clients best interest?? As long as the disclosure is there, what is the issue???
In some ways this is just silly. Of course the AMP Financial Advisor thinks that the AMP product is better than the MLC product. In addition if a prospective client goes to an AMP Financial Planner the client will be expecting to get mostly AMP products. If the client wanted totally independent financial advice they would go to an independent group. The problem is no one is truly independent anyway and in addition “Past performance is not a reliable indicator of future performance”. We need to look outside to see what buyers expect for example if you go to a ford dealership the sales person will be telling you about the strengths of the ford model that most suits your need not selling you a Toyota. Why does ASIC think that an investor going into the AMP Financial Planner is thinking other than they trust AMP and just want the AMP products that most suit their needs. Maybe the client wants AMP products. Maybe we need to get over it a little and let the aligned firms sell in-house products and services as long as those products and services are suited for the clients. The real problem is if a low risk client is given high risk products or vice versa no matter who manufactured the products.
I agree with you Matthew 100%. I’d also add that the “product” is really just the house. What matters is the investments that you put into that house.
If the adviser and their investment team has the skill to improve the investment returns and the product has access to the investments (ie direct share access) then the admin fee differential and the product being owned by AMP or CBA is not so relevant.
Choosing what to fill your house with has a bigger impact on most client’s bottom line. I wonder how many AMP products were recommended with an AMP investment inside it? Not as many I would guess.
I want to see Banks stand up for themselves and write an FSG that tells a client, you are either walking away with your existing product or XYZ bank product that better meets your needs. Same way industry funds do. I am curious if ASIC would have an issue with that approach when it comes from a bank?
“The problem is no one is truly independent anyway ” – not true mate. We are small in number but we do exist.
This would have been breaking news if it was posted 30 years ago
With all the issues that are happening I am yet see a BDM ,compliance person, manager, state manager or AFSL licence holder blamed for the rogue work of all the planners misdoings. I am sure all of the above tried stop the flow of business but were unsuccessful..
I’m sure this will happen when you produce the evidence of the gun to your head.
Surely this is not news to anyone, it is blatantly obvious and has been has been forever!
What “ASIC consulting with the advice industry ” ? I have been in the industry 40 years , paraded with awards and other useless pieces of glass, wood etc and have never ever heard of ASIC coming to Geelong and talk with advisers ….. I don’t think they would know where we are .Then again they may not like we say like common sense speak .
I assume Industry Funds Financial Planners would have a similar in house view and switching into the products they represent??
We sure do, but that’s not surprising either is it?. It is our job!
Yep, no different to a bank employed planner. So why the headline and why exclude IFFP from shadow shops and industry reviews like the one in this article?
No you are wrong. Union Fund Financial Planners recommend 100% Union funds. Yet not surprisingly ASIC makes no mention of this.
Why is this not a surprising result? Actually I thought the use of in-house products would have been higher than 68%. Just because APLs include non-house products doesn’t guarantee they will be used.
But the reality is that if I go to a planner that is aligned to a financial institution, it would be unreasonable of me to expect them to be recommending non-house products wouldn’t it?
As the well-hackneyed analogy goes – don’t expect your Ford dealer to be selling you a Mazda – unless of course it is a Ford badged white-labelled Madza!
But you dont go to a Mazda dealer looking for advice on Fords, or paying him for advice. You pay a financial adviser for adviser for advice. Its pretty simple.
Unless that planner is sitting in a CBA or ANZ bank branch…. Keep in mind this report is predominated by the employed channels
Surely this comes as no surprise.
do bears poop in der woods…
Not very surprising. My experience has been that Management at these groups talk about “Share of Wallet” (being how much House product as a percentage of total product sales) all the time and that percentage is a reference point for incentives. SOW is only a great acronym used in relation to those with their heads in the trough.
When is ASIC going to investigate the conflicts of interest at FASEA?
wow who would have thought!
I presume that the FPA and various connected individuals have been following this up for years now – so as to improve the standing of planners in the community. That is before they leave the FPA and take a job with one of the Instos.