Whistleblower Jeffrey Morris gave evidence before the Senate inquiry into the ASIC-Commonwealth FP affair in Canberra yesterday, expressing his view that the FOFA legislation is powerless to overcome ingrained conflicts of interest in the financial advice sector.
“[Banned former Commonwealth FP adviser] Don Nguyen was not a rogue planner… he was simply a symptom of a system that is fundamentally broken and a system that is bound to get much worse if the current trends are allowed to play out,” Mr Morris said.
“Despite FOFA banning some forms of conflicted remuneration, the ghost of conflicted remuneration through bonus schemes based on product sales has not been laid to rest.
“The financial advice industry today is a quagmire of conflicts of interest of which adviser remuneration is just one.”
According to Mr Morris, the culture of bonuses within vertically integrated businesses is a far greater problem than pre-FOFA product commissions due to the “cascading effect” right up the chain to senior wealth management executives.
“[Commonwealth FP’s] remuneration model has changed, but it only has a ‘reduced emphasis’ [on sales],” Mr Morris told the inquiry, paraphrasing from the Commonwealth Bank’s submission. “FOFA of course doesn’t affect the managers at all.”
Mr Morris revealed that Commonwealth FP advisers were previously ordered to “hose down clients” to make sure they didn’t make complaints.
“The order was given to act in the interests of the company, not the clients,” he said.
The revelation comes less than a week after the publication of a submission by AMP-linked adviser Rhys Wood, in which he points to “systemic bias” towards in-house product at vertically integrated advice businesses.
[quote name=”Enough please”]I don’t advise someone on basic strategy then suck them dry for decades when it’s not needed. Keep perfuming, as I said nothing will change. A good adviser would change the average scenario client maybe 3 times in their lifetime, not every month for their rest of their lives!…….aka Trail commission & or service fees. It’s no wonder fofa was introduced.[/quote]
Strange that any financial planner would form such a strong opinion without first getting all of the facts! Im a pure fee for service provider, always have been, why is it that you are bundling up the whole industry as a sales industry and that nothing will change? You obviously dont have all of the facts. Get your facts right Mr Enough Please, your inflamatory comments are not appreciated, further to this I am surprised that the IFA editor allowed your crass language onto this otherwise professional forum!
I don’t advise someone on basic strategy then suck them dry for decades when it’s not needed. Keep perfuming, as I said nothing will change. A good adviser would change the average scenario client maybe 3 times in their lifetime, not every month for their rest of their lives!…….aka Trail commission & or service fees. It’s no wonder fofa was introduced.
Enough Please… you know someone will be answering such an ignorant opinion. You are correct that advice leads to product… hello which industry doesn’t in some form or another. The entire world is based on sales with the exception of 3rd world countries!! A sale does not mean that there is a conflict – just that the income is derived from a sale of a product that leads to meeting the client’s need – or one is paid for time spend providing the advice. When its a one product fits all advice model that is enforced or encouraged via higher income, that is the issue here.
Enough please… do you spend days on a case which leads to “$0” if the client is uninsurable?? What do you do for a living? or are you on the govt purse??
Nothing has changed in the banks and it never will. You can keep perfuming the turd but nothing will ever change.
This WHOLE industry is a sales industry. Don’t deny it, no one walks into your office saying sell me insurance do they. Very very very few. That is why the commissions are huge. Call it an dopa fee, call it fee for service, it’s ALL THE SAME thing. Keep perfuming the truth FP industry you are all living in glass houses.
When managers are rewarded based on product sales, and those managers control the in house perks given to advisers (conferences, free meals, high end training, marketing allowances etc etc), it takes a single minded determination by an adviser to ignore the incentive to go with the easy in house product option. Why the pollies and ASIC have ignored this, one only knows. Too close to the product manufacturers one suspects. Vertical Integration IS the problem, and has left 80% of advisers as nothing better than Pavlov’s dog – trained to obey the hand that feeds them.
The easy answer is that legislation needs to make it harder for aligned, or vertically integrated business to comply, and less onerous for independent advisers to provide advice.
We are Authorised through a Non Aligned Dealer group based in Melbourne, we pay a flat fee and have No incentives , bonuses what so ever, exactly how it should be, they are excellent,.
PDM’s/BDM’s, sales manager’s are payed bonuses upon results in some of the larger Institutionally owned groups.
I cannot see why this has ever been able to continue – its a known fact that this model of remuneration for banking staff is set up to recommend in house products – and yes, the benefits go all the way up the executive chain!!
Wake up ASIC – this is conflicted remuneration in its purest definition.