Speaking to ifa at Parliament House in Canberra yesterday, Senator Williams – who has advocated for a royal commission into banking and financial services for seven years – warmly welcomed the Turnbull government’s announcement yesterday.
“Very pleased about this. A fair bit of pressure from the National Party and it is here at last,” Mr Williams said.
Though vertical integration of bank-owned wealth management groups was not listed specifically in the terms of reference, Senator Williams said he is confident it will be on the commission’s agenda.
“I’ve had serious concerns for a while about financial planners working for the banks – what’s called vertical integration,” he said.
“[I’m concerned about] the allegiance they may have to their employer instead of recommending the best product or giving the best advice for the client. That’s always a worry, but hopefully that sorts itself out with this inquiry.
“I would like to see it [in the terms of reference]. If I was working for Toyota selling cars, I’d want to sell you a Toyota – look after my boss, look after my company and make more of a wage. But it might be the case that Toyota is not the most suitable car for [the consumer] but I’d probably still sell you one anyway. That’s the problem I have with vertical integration.”
The federal government announced the decision yesterday following a letter from the big four bank CEOs acquiescing to an inquiry.
Mr Williams is one of a number of Nationals senators who were reportedly willing the cross the floor on the issue of a banking inquiry, alongside his colleague Barry O’Sullivan, as previously reported by ifa.
Start with requiring the simple representation of beneficial ownership / control of the AFSL. 923A becomes redundant, Commission v fee v whatever else you use for remuneration is likewise not relevant just so long as there is clear disclosure as to who is getting paid what.
Some people want to deal with AMP etc and feel more comfortable. That’s fine, just so long as it is the result of their informed choice and not via subterfuge of variations of branding.
Advice is not the issue and never has been, Undue influence and conflict are. However so are flawed products that ASIC says is not their fault but don’t spend enough time warning consumers that PDS and prospectuses are not ASIC approved as to representations made, they are basically approved that they have the table of contents right and that is about it.
Vertical integration is not so much the problem as is the fact that consumers are not fully informed as to who they are really dealing with.
As for ASIC and dealing with individual AFSLs. The ATO deals with 20,000 tax agents who act for 15M or so tax payers and their various trading entities, super funds etc. Those same tax agents deal in the tax liabilities and refunds of various taxpayers. The odd bad apple turns up and is dealt with. Surely ASIC can deal with a few thousand AFSLs. Most AFSLs don’t even have direct control of the money, they are audited annually on a financial basis and continuously on a compliance basis.
Surely the choice should be simple for consumers and be between a correctly disclosed independently owned AFSL or a clearly branded institutionally owned AFSL. Just be honest about who is getting the money.
Happy for vertical integration. Let’s sell our trillions of super to foreign owned companies. Then let’s put vertical integration into everything eg a framer who sells wheat cannot be on the wheat board. Hair salons cannot have their own branded products. Petrol companies cannot own petrol stations and car manufacturer cannot have sales departments all the same concept. Let’s add super funds cannot have facial planning arms. Apparently people in Australia cannot make there own choices . There is a conflict of interest in everything Evan ASIC get paid more when they find issues and politicians make laws for themselves. Thai will be fun.
If Senator Williams had been an honorable man he would have started out by threatening to cross the floor and vote with Labor for a Royal Commission. He should then have done so if he had been a man of his convictions.
“A fair bit of pressure from the National Party” is an admission that the pressure came from others rather than from him.
Whacka’s analogy with Toyota’s cars is a good one. The key question is whether there is something fundamentally wrong with Toyota cars that will not meet the needs of the client to get from a to b. If they achieve this objective why is anyone concerned whether the client buys a Toyota or any other car ? The elephant in the room is that attribution analysis shows that 90% of the return comes from the client asset allocation not the individual components. Therefore arguing that there are better Toyota financial products is a complete furfy. The real issue is whether the advisers employed by the banks give good advice or not.
ASIC would prefer less than 100 AFSLs. That’s been obvious since 2004. Easy to scare with the odd EU. And after all, most would be owned by banks , so that means nothing can go wrong, can it.( Joke, Joyce ) ASIC still will not come clean on how bank “salaried “advisers are meant to be disclosing “commission ” ( sorry salary ) in their “sample” SOA.. The mere numbers do not bother me, I had my own risk AFSL , with no other advisers, and it worked fine. PI is a lot easier to get at a fair price when the only adviser in the AFSL owns the business, and has the risk only experience and never had a claim or breach. Just ask a good adviser whose reputation was besmirched when the head of the AFSL he was authorised by was banned.
Every adviser should be individually licenced, as it is in other countries
You better throw IOOF into the mix with the Banks & AMP … they are masters at extracting fees through the client chain of events ..
With the vast amount of planners now working for Toyota or a Toyota white labeled car yard…he is going to have a tough time preaching to the adviosry market…. but very easy to the consumer.
It seems that what Senators Williams is saying is that the consumer knows that a Toyota Dealership sells Toyotas and that they must research the suitability of the product themselves and apparently this is OK. So why is this different for financial products? Well because the “sales agents” working at bank owned distribution centres in the financial services industry call themselves Advisers. Once the advice industry is totally separate from the product manufacturers, much of the unnecessary compliance red tape imposed on all of us becomes redundant.
The bigger problem is that in financial planning world the “Toyota dealership” is usually not branded as Toyota. The consumer doesn’t realise they are in a Toyota dealership in the first place. Let’s hope the inquiry recommends that financial product institutions are no longer allowed to use their misleading brands like Hillross, Charter, Magnitude, Securitor, Count, Shadforths, Bridges, Financial Wisdom etc.
Sadly its the misinformed leading the blind. Imagine a cottage industry where ASIC had to monitor 6000 small AFSL’s. These AFSL’s require no minimum capital adequacy requirements to operate and fiscally are in no position to compensate clients if something untoward were to happen. It would be tax payers left footing the bill. I’m sure this Whacka fellow means well but he is being sadly misinformed and I can assure you ASIC do not have the resources or willingness to manage and enforce the circus that would follow.
So you’re saying choice and competition are bad things? You have been institutionalized my friend
What you’ve just done is accused 12,000 financial planners as being crooks and cowboys and implied they are all too shonky to act on behalf of clients. Whilst recent academic research has proved the opposite in that there is an inheriant conflict of interest exists with planners and large licensee.
As an small licensee with two AR’s I’ve have to had my financials independently audited by an ASIC appointed auditor. I’ve had to produce cashflow and financial projections. ASIC commented about those projections. The same legislation requirements that apply to Banks apply to me. The representative auditor I used was actually an auditor that audited the big banks and does consulting work on the side. Fiscally if something was untoward was to happen then I have PI cover in place. Finally my head is directly on the chopping block if something was to go wrong…is yours ? or will you hide amoungst 300 planners in your licensee.
This is in fact the root cause ,ground zero of the problem .Back in the day ASIC decided that herding cats into 5 big stables was the best solution ,so now you have what you have !An industry of compliance ,that is not trusted or engaged by consumers ,only 25% people use a financial adviser.The blame is at your feet ASIC.
85% of financial planners are shaking in their boots right about now…. and about time. there is a reason why we’re up to our necks in compliance. A larger problem is when the consumer walks into the car yard and thinks he’d getting advice about transportation, but that car yard is only selling Toyota’s. Hopefully Banks and AMP will be banned from re-branding where they hold more than say a 50% ownership.
Agree. The ADG all need to go!
Really you go to the car yard for transportation advice? So your that guy! I like my local Mazda Dealer I would expect for him to tell me why the Mazda 3 will not work for my family of 6 and I should look at a CX9 but I wouldnt expect him to sell me a Toyota Prado and if I am going there to ask him for that advice I should expect to pay him for that advice but you know what no one will. Thats why you now have buyer advocates.
Let me dumb this down for you. Yes the current advice landscape is like consumers who don’t know whether to catch the bus, walk, drive a car, or ride a bike to get to their financial destination or to meet their financial goals. Australians wanting advice are like a consumer walking into a business that clearly advertises that we are a “transportation advice business” but really it’s just a Mazda car yard, with the Mazda logo hidden out the back behind the industrial bin. If Banks owned licensee’s were forced to clearly disclose their relationship or we had better disclosure where banks owned 50% of the advice business, then that’s where we’ve got you’re outcome that you’ve described. i.e the consumer clearly understands they are only going to get sold a “car” and two it’s going to be a Mazda.. and there is nothing wrong with that.