In a comment posted on ifa yesterday, Jason Bragger, principal of Brisbane-based Paragem practice Dolfinwise, said vertical integration – whereby subsidies or incentives are provided to aligned advisers to recommend the products of their parent company – was not adequately dealt with in ASIC’s recently released guidance.
“Vertical integration is the elephant in the room when it comes to conflicted remuneration and more importantly conflicted advice,” he said.
“It’s not possible ASIC is not aware of the elephant but as the problem is too big and too entrenched to the benefit of the powerful bank lobby the elephant remains in the room,” he added.
“Government and ASIC point at the mice they are busy removing from the room but we all know conflict free advice is harder to find than ever.”
Expanding on his comment, Bragger told ifa there is a lot of ambiguity surrounding vertical integration.
“Product manufacturers should be entitled to employ or license product advisers to distribute their products,” he said, “but the concept of these people masquerading as ‘financial planners’ providing unbiased advice needs to be dealt with.”
The comments follow an exclusive interview with regulation lawyer Bill Fuggle published in ifa sister title InvestorDaily today.
“I don’t see how ASIC could have possibly overlooked the issue of vertical integration,” said Fuggle, who is a partner in the Sydney office of Baker & McKenzie, the world’s largest law firm.
“Rather, it seems that ASIC has made a deliberate attempt to consolidate market share and power in favour of large vertically integrated market players, in other words – a deliberate attempt to squeeze out the non-vertically integrated players.
“The FOFA reforms and stand on conflicted remuneration in particular are positioned as some sort of attempt to even the playing field when in fact there is a deliberate move going on to tip the scales in favour of the bigger players and squeeze out the boutiques and smaller players [in the financial planning industry],” he said.
Does ASIC have an agenda against small and boutique advisers? Have your say below.
So, conflicted advice only exists for IFA’s? Unbiased advice CANNOT exist when advisers are given incentives & directives by their employers, surely this is what conflicted advice is? I was once told by a State Managers of one of the largest insurers in the country, “its not about best advice, its only about good advice”. Balls to him, THATS what is wrong with our industry, greed & in most cases at the corporate level!
Yes. It is far easier for ASIC to deal with fewer licencees with large cheque books than boutiques. This has been going on for some time and I cant see it changing. Power is influencial at all levels and small independents just have no power and our FPA are not really tacking it either. And I agree with Long Term Cynic. Russell, it is not htat pollies are thick, they are just blind to realities in our industry – look at their own career path to see why they favour industry funds and banks…
Given 80% of all advisers are OWNED by institutions, its no surprise everyone has been silent about the elephant in the room. There is only one small change needed to help the market fix this itself and it terrifies the 80% and their owners;
Don’t just legislate the term “Financial Planner”. Legislate the term “Independent Financial Planner” as well, such that only those licensed with a non institutionally owned AFSL can use the term. Only the compromised would argue against this.
The FOFA “reforms” are a minor sideshow compared to the real issue of consumers getting independent unbiased advice. If ASIC were to address the question of why advisers employed by the institutions favour in-house products and insist they not do so, that would really do something about making unbiased advice widely available.
Imagine if institutions were required to provide ASIC with figures showing what proportion of their SOAs recommend in-house products. If the figure is above say 50% ASIC should then demand an explanation. If the pattern persists then ASIC should use its powers to ensure the practice ceases.
However ASIC are only public servants doing what politicians want them to. I believe the real reason why ASIC hasn’t addressed the issue of employed advisers favouring in-house products is that the politicians who set the agenda are too thick to have even recognised the issue, meaning it hasn’t been included in the legislation.
Given that vertical integration and the various bias involved is well know, one really must question why the ASIC has not addressed this properly. My cynical view (as others have already expressed), is that it is ASICs intention to favour large institutions, as they can just hand out “enforcable undertakings” so it’s easier for them to regulate. Failure to deal with this issue now will only continue to hinder people getting un bias advice and makes mockery of all the FOFA changes. It would be worth IFA asking the ASIC questions on this very issue and publishing the responses, if the ASIC declines, this would be a very telling action on their part.
I don’t want to give away too much here, but I know of several small non-institution based licensee’s who are having ASIC audits every 6 months and they are picking on the smallest issues in the SOA reviews and these are cases where it hasn’t even cost the client any financial disadvantage yet ASIC are all over these smaller groups like a rash. It almost seems like they are dilligently trying to throw everything possible at them and hoping something sticks so they can eventually cancel their AFS license and remove them from the industry. Why dont ASIC just say we only want the Coles and Woolworths equivalent for licensees in this country which makes our jobs easier!
We all know it….but stuff all we can do. ASIC wants consolidation and financially sound licensees because they can’t police this diverse industry effectively.
It’s where the industry was derived from in the first place…a distribution channel for managed funds….and now we’re headed back to the mothership.
Doctors should not be employed by drug companies and provide general practice or specialist medical services.
Financial advisers should not be employed by product manufacturers (banks, insurance companies) for exactly the same reasons.
Employees hold a higher duty to their employer than their customer.
This is very important. Im glad its being discussed.