Addressing the SMSF Association National Conference in the Gold Coast on Wednesday, BT national manager of SMSF strategy Neil Sparks referred to the recent case of an adviser banned for four years for not adequately managing conflicts of interest when recommending setting up an SMSF.
“It was an advice business with an SMSF business that was operated in house, so doing in-house SMSF administration. The director of the advice business was also the sole shareholder of the SMSF administration company,” Mr Sparks explained.
“In ASIC’s view, he failed to investigate alternative strategies and products that may have been suitable and prioritise the client’s interest ahead of his own. Because there wasn’t a process in the file that demonstrated how they had looked at alternatives to an SMSF, the impression was that they went straight to an SMSF.”
While many advice businesses would be in the same boat of referring clients to additional business lines within their practice, this was not an issue if the adviser could clearly demonstrate that they had looked at all other options for the client and determined that the additional services were warranted, Mr Sparks said.
“If I was the owner of an accounting firm that had an advice business in house and we do referrals from the accounting business and give them to a financial adviser, employ an adviser to set up SMSFs that you are going to do the administration for, would we not be in a similar position to this person that’s been banned for four years?” he said.
“I think the only thing that’s going to prevent this from occurring is process, having a really clean process.”
Mr Sparks said in order to adequately manage conflicts such as these, advisers needed to be extremely detailed in their documentation of research and conversations with the client.
“You need to think of your client file as a story that talks to a disinterested person, so when ASIC pick up that file they want to see from start to end the process you took looking at what the client’s doing, what their needs and objectives are, what you’ve looked at as consideration for them before you’ve recommended a change in product,” he said.
“The file needs to tell that story and if there’s any gaps in the file that’s what would see you come undone under the best interest duty.”
The example described is what thousands of accountants do every day of the week, to the detriment of their clients. However because they are not licensed, they are ignored by the regulators. ASIC and the government are primarily focused on persecuting advisers. They really don’t care about protecting consumers.
Regarding Conflicts of Interests & fees, BT is not required to disclose the fees they earn on their internal Wholesale Plus products. Only the gross fee. Also, when a Union Super Fund adviser is collecting salary & bonuses for providing “commission free” intra-fund advice, paid for by other fund members (who have never given informed consent that they are paying for the advice for other members), this is a massive lack of disclosure to those members. Just publishing a new FSG on the website does NOT meet the definition of informed consent. The only one that takes the hit is the non-salaried advisers. We are being punished beyond belief.
That is whataboutism. “I won’t answer your point but say ‘what about such and such'”.
I really wish BT/Westpac would stop telling us how meet our legal and ethical obligations when they have repeatedly demonstrated that they haven’t found an obligation that they don’t attempt to avoid. Under the FASEA code I don’t need to just manage conflicts, I need to avoid them or not act for the client. Process can help in relation to reasonable investigations into alternate products and strategies as they apply to the client’s relevant personal circumstances. Benchmarking of a related entities fees and services, no payments of referral fees/related performance bonuses, directly or indirectly to advisers, etc. can also assist in demonstrating that no actual conflict exists.
“Advisers need to consider managing conflicts of interest….according to BT”
Talk about the fox guarding the hen house….
There is actually no one better informed and qualified than the fox. You don’t have to like the fox nor even subscribe to the aims of the fox, but when he’s talking about the hen house it would be wise to listen-up!
Very true. In the 18/19th century the first police was partly recruited from criminals – Vidocq is a good example. Jane Hume’s comments are very pertinent because she knows the industry.
Every business in the world has a conflict of interest. It is called competition. You design a product or service and then compete for business.
Exactly right!
Exactly wrong, actually.. It’s the elimination of competition that is the conflict of interest…
good to see ASIC anticipating how FASEA Code Standard 3 applies. Process won’t save you from the need to avoid the conflict. recommending your own products and services is inherently conflicted. Stop doing it.
IF I work for Australian Super – can I recommend Australian Super all day everyday – I believe so with no conflict. All very clear?
No, you couldn’t ‘recommend’ Australian Super! You could only provide general advice/information about Australian Super AND would need to state that to any person, so that they clearly understood your inability to advise otherwsie.. This is simple stuff If you can’t get your head around it it may be time to move on to another career…
You are quite right but that is not how industry funds give advice. They do recommend their own products – they are usually ok because the investment products are pretty good. In regards to their insurance products, though …
Ok, so I can sell Australian Super product with no BID or conflict so long as I’m employed?
Fine in theory. But most consumers don’t understand the subtle distinction between personal and general advice, no matter how much you explain it. Consumers perceive general advice as a personal recommendation. It is a legislative loophole that is routinely exploited by union funds. For the sake of consumers, “general advice” needs to be scrapped. Super fund employees should only ever be referring clients to the relevant pages in their PDS for factual information, or else referring them to a licensed adviser for personal advice.
FASEA only applies to advisers (including salaried Union Super fund advisers), not institutions.
True. But most union super fund advice is given by unlicensed employees via the “general advice” loophole. Neither FASEA nor BID applies in that situation.