In an interim FSI report handed down this morning, the panel – which is chaired by former CBA boss David Murray and includes former AMP boss Craig Dunn – raised a number of issues in the financial advice sector that it is examining closely, requesting additional stakeholder engagement.
On the issue of independent financial advice, the interim report reveals that “some submissions argue that lack of structural independence can impair the quality of advice” while others argue it is “not ownership but remuneration that creates conflicts that reduce quality”.
While making clear the FSI’s definition of independent “does not equate to the definition of independent in the Corporations Act”, it also looks to the UK separation of “restricted” and “independent” advice as a potential model for Australian adoption.
Specifically, the report seeks “further information” on whether there is a case to “more clearly distinguish” between licensing segments, whether “consumers would be likely to understand the difference between aligned and independent advisers” and whether they would be “sensitive to differences in the price of independent or aligned advice”.
At the same time, the report concludes that “there have been notable instances of losses incurred by the customers of financial advisers from both independent and aligned groups”.
More to come.
Great to see recognition of product versus advice separation as this is foundation of ethical businesses in advice such as accounting and law. Also good to see recognition of independent versus vested interest interest advice.
The property investment advice sector is watching with great interest. I am sure it is our turn for regulation next.
If the institutions dont think they are hiding anything by using a myriad of Dealer groups to mask the true owners of 85% plus of the advisers in the country then they should be happy to put CBA logo’s all over all their dealer groups information. And same for the rest of the banks, AMP, etc.
So why dont they currently do this ?? Because they believe there is an advantage in the client not being able to make a clear distinction that the institutional advise they receive ultimately ends in an institutional product sale.
Im not saying this is wrong but clearly it should be clearly labelled and explained to the clients.
Sorry Banks / institutions don’t have clients, they have customers. And that folks is the real difference between good advisers and bad.
Number (5). Stephen, So Australia leads the way does it, how come ASIC did not act when they had been told LMIM was in trouble back in 2002 & again in 2009, they did nothing leaving 12,000 investors 750 million $ lost due to the lack of the ASIC to react. That’s not what I would call leading the way.
No way jose. if you give consumers a choice between ‘independent’ and ‘restricted’, they will choose the former every time – and that is happening in the UK and US right now. The problem is that in those countries, insto advice is not 80% of the makret. Somehow i dont think the banks or their agents in politics would ever allow such a divide. hopefully murray has the guts to recoemmend it, but even thats unlikely
The average person does not care and/or will not understand. They see the qualification on the wall and assume (probably rightly) that it signifies quality.
Having been a GRC professional for over 30 yrs in financial services and also that Australia leads the way in financial regulation, I find it ludicrous that Mr Murray has to go to the UK for examples when they suffered horribly during the GFC. Until the influence of the big 4 is neutered and their influence on every single facet of life is constrained , we will always be at their mercy. There is no such thing as too big to fail – the arrogance of the Banks is continuously amazing and the latest CBA fiasco with their financial planners and letting them review their own advice is ridiculous and a fragrant and unbelievable Conflict of Interest. They need to be brought to account – that is if the Liberal government has the stomach to do it. The same can be said for our ASIC chair who just wants to get back to banking as being a regulator is just too hard and ethics and morals are too hard to impose.
The question should be about consumer protection when things go wrong. It is impossible to stop “bad advice”. That is often a subjective assessment. What a client thinks is good advice before an adverse event such as a GFC is often deemed by them to be bad afterwards. A client has limited recourse to compensation from an Independent Licensee. PI is not the answer and was never meant to be. The only protection the consumer has is the size of the Licensee’s balance sheet.
Anything that distinguishes between employed product salespeople and independent advisers has to be a good move.
Consumers need to be aware of any influences that may effect a recommendation and this includes who Licences the adviser.
It is a mistake to demonise the product recommended. The key issue is the quality of the advice and consumer protection. When a young guy/girl crashes their car we don’t blame the car we look for ways to prevent others from making the same mistakes – eg reduce speed, drink driving etc In the same way, the CBA example highlights the dangers of letting young, inexperienced people or reckless,rule breaking advisers in front of the client ( wheel ) with inadequate protection measures in place. The banks should not be allowed to position these people as advisers unless the customer is offered the same levels of consumer protection as a qualified adviser. Removal of consumer protections exemptions for banks and industry funds for general advice must be the first priority of the senate.
The UK experience shows consumers really don’t understand the differences. It is like CA versus CPA. Who asks? Only other accountants. There is also evidence to suggest that aligned and independent advice is not a determinant of cost. They both can be expensive or inexpensive. We must identify what problem we are trying to solve here. My view it is the quality of the advice. Simple yes but not easy. Many of these issues are peripheral. It is shown institutional ownership is not the cause of poor advice. I think you will find the root cause is in education, both of advisers and clients.