Addressing a press conference in Sydney yesterday to elaborate on the bank’s annual profit results, Mr Narev fielded questions about the appropriateness of bank-owned wealth management in the post-FOFA environment.
“The intent of FOFA was to make sure that no matter how you are dealing with a customer, you are dealing in their best interests and I think a financial institution and a financial system has got to hold that principle absolutely paramount,” Mr Narev said.
“If we violate that [then] we need to put it right, but we have got to have business settings that make sure the customer’s interests are absolutely paramount. I don’t think that is inconsistent with [an advice provider] owning the asset management arm.”
Separate businesses within the same institution can be run efficiently and ethically if the “processes, management structures and incentives” all place the consumer’s interest as the top priority, Mr Narev said, adding that “they can be and are”.
The comments came as Mr Narev announced a $793 million profit for the bank’s wealth management business in the 12 months to 30 June 2014.
“If you look at the wealth management business this time around, 17 per cent cash net profit after tax creates an environment where the regulatory spend is still very significant,” he said.
“I think that is still a very good contributor to the group, and even more importantly, it is good for our customers.”
In addition, the banking chief spoke about the appointment of Promontory Financial Group to head the external elements of the Open Advice Review, though made clear that further updates may be limited.
“Because we want to ensure that independence is there and the facts are given by independent people, we are not going to be giving out bits of information on the way,” he said.
“But we are working through with Promontory a reporting format that is going to be designed to give people confidence that there will be independence, fairness and transparency in the program.”
Dave…this is music to my ears and the exact anology I have been using. The one thing I will say is I have no trouble with this if the whole process is transparent and the conflicts are acknowledged. Unfortunately in the past not all clients were made aware of the ownership links behind the products they were getting.
If I have always owned and driven a Ford and like them and are comfortable with them and then walk into a Ford dealer and explain what i use my car for, what I like about cars, etc and the dealer explains Ford model XXX will meet all of those needs, what’s the problem? Perhaps a BMW is technically the ‘best’ car for me, but if the Ford meets all my needs and I’m happy, what’s the issue? I wouldn’t walk into Ford and expect the dealer to tell me I should try Holden next door… Let’s face it, product is really only 1% of outcomes for clients, all the benefits they get and the big difference in their lives is the STRATEGIC advice they get, the products used are largely irrelevant. Does anyone honestly think there is that much of a gap between MLC/AMP/CFS/IOOF, etc?
All the CEO’s and boards are doing are keeping their jobs and placating the people who can sack them…the investors-yep you guessed it those people how complain about advice practices.
So independent advice is advice that is independent of product developers, platform operators and vertically aligned licensees, but it is also advice that is independent of shareholders who have conflicting needs and fail to understand this conflict isn’t manageable. It’s a hard pill, but who cares how hard it is, just swallow.
Just to put it on the table, I am an advice purist and believe that ‘product advice’ isn’t advice at all, it is sales. Like it or not the Banks get this!!! They don’t actually believe in advice, they believe in product sales – Just look at their APL’s which are so restrictive that a planner needs to request one off product approval for Term Deposits because the APL only has one available (their institutions).
So here’s where it gets to…its not about vertical integration (although a fun topic to talk about), its not about responsible managers being responsible…its actually about not having publicly listed companies owning advice channels!!! Why, because at the end of the day shareholders are greedy and don’t see the link between their greed and the day to day actions of the companies they invest in.
Patrick this further explains the Dilemma
taken from our friends at the Fold-
“Responsible Manager Only Unless your personal acts or omissions caused or contributed to a breach of the AFS laws by the licensee who has appointed you a Responsible Manager its highly unlikely that you would be found personally liable. If you did contribute to the breach, then you could be banned for a period, or for life, and you could be fined. “
I especially like further comemntary in the article and imagine in the CBA’s case Management overrode the RM decisions on a commercial basis!
Very interesting point from Steve. Given the extended period of poor advice have all CBA responsible managers been held accountable by ASIC. Should they not be permanently banned from engaging in the advice business or are all these regulations nothing but a paper tiger.
H- I believe this is the problem with the whole Responsible Manager part here is an extract from ASIC..Requirements for responsible managers
Your responsible managers are the people you rely on for your organisational competence. Before you nominate a new responsible manager, you need to ensure that the person concerned:
is directly responsible for significant day-to-day business decisions about your ongoing provision of financial services;
is of good fame and character; and
has the qualifications and experience to meet one of the five options in Section C of Regulatory Guide 105 Licensing: Organisational competence .(RG105)
In many organisations (like Banks) they are so far down the command tree that their role is ineffective because they answer to a higher command. At at the end of the day RM’s are there becuase ASIC says you need them but it appears they give no real comfort to the consumer when things go wrong.
CBA management at the time of the latest crisis should be named and held to account. By letting the hopeless advice practices continue in the organisation they have managed to tarnish the reputation of all Financial Advisers. Why should we be taking the fall for CBA management decisions and here we are letting them run the process. Who was the Responsible Manager???
Is he for real…just another Bank CEO claiming its not the business structure that is wrong it’s those terrible planners. When is the industry, regulator and public going to wake up and see that Banks happily throw their staff under the bus for bad practices when they are the ones driving the practices from their ivory towers, taking the money and claiming no knowledge of planner activities. Aren’t they the ones who set the KPI’s with their general managers and approved the verticle integration? Why should we be surprised they got into these positions by never being responsible for anything except ensuring they took credit for other people’s efforts while blaming anyone but themselves for the inevitable problems that follow their imcompetency.
Despite a belting in the courts, they just don’t get it, do they. To the banks its about distribution & control. Profit before relationship
The whole rotten bank advice system is Tied Agency 101-advisers need the points to substantiate their “salary” Must have 17% CNP. Advisers who fail targets set by management with skin in the game do not survive The Woollongong case shows exactly that – the adviser gave evidence in Court he was under the hammer
If the banks were fair dinkum about best interests they would put a Chinese Wall between banking and wealth management/protection. They would stop the awarding of “points” to get a loan over the line “if the insurance was with us “
Independence is important for the Open Advice Review…but not when it comes to providing financial advice.
Confusing.
I’m an independent and do not see any issues with product managers ownership of advisory firms. Providing that the method by which tha adviser gets paid is by way of fees and clearly disclosed, and that the alignment is clearly disclosed. We sould all trust in our fellow professionals that we all act in the clients best interest, aligned or not. Lets show a bit of faith that ASIC has this in hand ( a stretch I admit) and the CBA, and other licensees, yes including independent, will take note and move on in a more responsible manner. Seems that in bagging out on product manufacturer licensees that we pit aligned advisers against non aligned advisers and this is not what this is all about.
And he managed to keep a straight face?
JA the banks et al will stop if we uncouple the vertical integration conundrum. Independent professional advisers become the product manufacturers’ customers the advisers in turn act as advocates for the clients they represent and who pay fees for that representation.
There is no substance to what he has said and it isn’t doing CBA any favours – adding that “they can be and are” is pure rubbish. Trying to say that processes and adviser rem structures are ethical is laughable. When will the banks stop treating “clients” as “customers”? – unfortunately never.
How then does Mr Narev explain the systemic failure of CFP et al to act in the customers best interests and the priority given to sales volume and profit for eight (8) years at least if not more. In the unlikely event that ASIC ever attacked me I would simply appeal to the AAT citing the leniency granted CBA and expect equal treatment.
Would Mr Ian Narev then please explain how CBA intends to place the best interest of clients first (fiduciary duty) while at the same time serve the best interest of the shareholders (profit maximisation) of CBA? How does one reconcile these two?
I think these comments would be much more believable from a company that has not shown multiple transgressions in its client centric policies since 2007. That had not shown a blind eye to the internal personalities and procedures that produced these problems until recently. That has not been alleged to have shredded client files who have had problems with their procedures.
It would be fairer to talk where they are focused for the future and the independent review of their processes until confidence is restored. That may well be inspiring.
Get your hand. off it
….but he would say that, wouldn’t he!